Third party fairness opinions now sit at the center of governance for continuation funds, transforming from “nice‑to‑have” to a de facto precondition for LPAC conflict waivers in many markets. They help reconcile deep conflicts of interest inherent in GP‑led secondaries by providing an independent financial assessment of whether price and terms are fair to both selling and rolling LPs.

What Are Continuation Funds?

Continuation funds are specialized vehicles set up to acquire one or more portfolio companies from an existing private equity fund, typically near or after the expiry of the original fund’s term. They offer incumbent LPs a choice: crystallize value by selling at the continuation fund price, or roll into the new vehicle and extend exposure for several more years.

Key structural features include that the GP usually sits on both sides of the transaction as seller (legacy fund) and buyer (continuation fund). Liquidity‑seeking LPs transact against price‑sensitive, return‑seeking LPs and new secondary buyers, all under conditions of valuation opacity and illiquidity.

The Governance Problem: Conflicts at the Core

Continuation funds concentrate several acute conflicts of interest in one structure. The GP is economically incentivised to set a price and terms that preserve upside in the continuation vehicle while delivering a “marketable” exit to selling LPs.

Fee resets, new carry structures and selective roll‑overs can shift value between selling LPs, rolling LPs, the GP and new secondary investors. Because of this, LPACs increasingly treat continuation transactions as conflict‑heavy related‑party deals requiring enhanced scrutiny rather than routine fund extensions.

Why Third Party Fairness Opinions Matter

A third party fairness opinion is a professional judgment that the consideration and key financial terms in a transaction are fair, from a financial point of view, to a specified constituency such as selling and/or rolling LPs. It is not a view that the deal is optimal, only that it falls within a reasonable range of outcomes based on robust analysis.

In the context of continuation funds, independent fairness opinions are relevant for at least four reasons. First, on conflict mitigation, an independent advisor provides a check on the GP’s ability to mark its own homework when transferring assets between related funds. Second, the need to support an opinion with evidence typically pushes GPs toward broader auction processes, better documentation, and clearer disclosure of assumptions and conflicts, reinforcing process discipline.

Third, fairness opinions provide fiduciary cover: LPACs and GPs can point to an external assessment when defending their decisions under duty of care and loyalty standards, particularly if valuation outcomes are later challenged. Fourth, they bolster LP confidence and participation, because LPs are more likely to engage with roll/sell choices when they perceive that pricing has been tested against independent valuation work rather than internal NAV marks.

Regulatory and Self‑Regulatory Drivers

Even where not strictly mandated, the trajectory of regulation and best practice strongly favours independent opinions. The SEC’s now‑vacated Private Fund Adviser Rules would have required SEC‑registered advisers leading secondary transactions to obtain and share a fairness or valuation opinion with investors, reinforcing the practice in GP‑led secondaries.

Although the US Court of Appeals for the Fifth Circuit subsequently vacated these rules in June 2024, the opinion requirement remains embedded as an expectations benchmark in the US market. In parallel, ILPA’s 2023 Guidance on continuation funds explicitly encourages the use of independent fairness opinions, framing them as a tool to test pricing and support LPAC conflict‑waiver decisions.

The result is that fairness opinions have shifted from episodic governance tools to a recurring feature of well‑run continuation processes, particularly for larger or more complex GP‑led secondaries.

Economic Relevance: Deep Discounts and Valuation Tension

The economic backdrop makes fairness opinions more salient today than in prior cycles. A large stock of ageing assets is trapped in legacy funds following years of heavy deployment, higher rates and muted IPO/M&A markets, creating a liquidity backlog.

Secondary volumes and continuation funds have expanded rapidly, with GP‑led secondaries now representing a significant share of overall secondary market activity. Pricing relative to reported NAVs varies widely across deals, with some continuation transactions pricing close to par and others at deep discounts, raising acute fairness questions for selling LPs.

Against this backdrop, a fairness opinion helps LPs distinguish between discounts that reflect illiquidity or risk premia and those that suggest aggressive GP valuation practices or misalignment in structuring.

How Fairness Opinions Support LPAC Decision‑Making

From the LPAC’s perspective, a third party fairness opinion has both substantive and procedural relevance. Substantively, it tests the reasonableness of key valuation inputs (forecast cash flows, exit multiples, discount rates, capital structure assumptions) against market evidence.

It also evaluates the fairness of consideration and terms to specified groups, for example selling LPs, rolling LPs, or the legacy fund as a whole. Procedurally, it demonstrates that the LPAC sought independent advice when considering a conflict waiver, aligning with best practice and case‑law‑driven expectations around duty of care.

This in turn supports the record‑keeping and disclosure trail that LPs and regulators increasingly expect in conflict‑rich transactions. For many LPACs, a robust fairness opinion has become a threshold requirement before granting the GP a conflict‑of‑interest waiver to proceed with a continuation fund transaction.

Practical Design of Fairness Opinions in Continuation Deals

To be decision‑useful, fairness opinions in continuation fund transactions typically exhibit several characteristics. Independence is central: the opinion provider is not a related person of the adviser, and ideally is not earning a success‑based fee on the transaction.

Scope clarity is also critical, with the opinion clearly identifying whose financial interests it addresses and what is, and is not, being opined on. Methodological robustness matters, with analysis that triangulates different valuation methods and cross‑checks such as DCF, trading comparables, transaction multiples, and NAV benchmarking.

Sensitivity and downside testing around exit timing, market multiples and capital structure should frame whether fairness holds across plausible paths, not just the base case. The opinion itself is usually delivered shortly before LPAC approval and LP election deadlines, often accompanied by a detailed presentation of valuation work rather than a bare one‑page letter.

When Third Party Opinions Add the Most Value

While almost all continuation transactions involve some form of external valuation input, full fairness opinions are particularly relevant in certain scenarios. They are especially useful where the deal involves a concentrated “trophy” asset with divergent views on residual value and holding period.

They add value where pricing implies a material discount or premium to reported NAV, heightening distributional tension between selling and rolling LPs. They also matter when the GP is resetting economics (fees, carry, hurdles) in ways that could transfer value between constituencies, or where the LP base is fragmented or includes regulated or retail‑facing investors with heightened governance expectations.

In these settings, the marginal cost of a fairness opinion is often small relative to the potential for disputes, reputational damage, or regulatory scrutiny if the deal later appears biased or mis‑priced.

Role of Fairness Opinions by Stakeholder

Limitations and Misconceptions

Despite their importance, fairness opinions are not a panacea. They do not guarantee transaction success, future performance, or that a better deal could not theoretically have been obtained.

They rely on information supplied by the GP and market data, and so are only as strong as the underlying inputs and disclosure. They assess fairness at a point in time, not across the entire life of the continuation fund.

Moreover, over‑reliance on opinions can create a false sense of security if LPACs treat them as box‑ticking rather than integrating them into a broader evaluation of process quality, conflicts, and alternatives. Used properly, however, third party fairness opinions remain a central tool for aligning economic outcomes with fiduciary and governance expectations in continuation funds.

Annex – Glossary

• Continuation fund: A fund created to acquire one or more portfolio companies from an existing private equity fund, allowing LPs to sell or roll their interests into a new vehicle.

• GP‑led secondary: A secondary transaction initiated by the GP, often involving the transfer of assets from a legacy fund to a continuation fund that the same GP manages.

• Fairness opinion: A professional opinion, usually from an investment bank or valuation firm, stating that the financial terms of a transaction are fair, from a financial point of view, to a specified party.

• Valuation opinion: An independent assessment of the value or range of values of an asset or entity, without necessarily opining on the fairness of transaction terms.

• LP (Limited Partner): Investor in a private equity fund with limited liability and no managerial control, typically institutional investors or high‑net‑worth individuals.

• LPAC (Limited Partner Advisory Committee): A committee of representative LPs with governance functions, including the review of conflicts and consent to certain GP actions.

• NAV (Net Asset Value): The aggregate value of a fund’s assets minus its liabilities, often used as the reference point for pricing continuation fund transactions.

• Secondary market: Market in which existing fund interests or portfolios are bought and sold, including both LP‑led sales of fund interests and GP‑led continuation transactions.

• Carry (Carried interest): Performance‑linked share of profits allocated to the GP, often reset or re‑negotiated in continuation fund structures.

• Duty of care / duty of loyalty: Core components of fiduciary duty requiring decision‑makers to act on an informed basis and avoid undisclosed self‑dealing or conflicts.

References

Crow, Matthew R., and colleagues. Fairness Opinions for Continuation Fund Transactions. Memphis: Mercer Capital, Summer 2025.