ILPA tells GPs to justify continuation vehicle processes, not just run them - ILPA's new guidance for continuation vehicles

Listen now or read the full briefing below

KEY INSIGHTS

CVs are now mainstream: Continuation vehicles have grown from a niche liquidity mechanism to a standard portfolio management tool in private equity and, increasingly, for other asset classes too. But that rapid growth has resulted in LP concerns about misuse and misalignment, forcing ILPA to update its guidance within three years.

Purpose and process, not paperwork: ILPA's revised guidance demands that GPs treat CVs as a deliberate choice and not a default. It says they must actively manage conflicts and provide standardised disclosure – generic disclosures and blanket waivers will no longer suffice.

Regulators are reinforcing the message: The FCA has flagged CVs as an area of concern in its feedback on its conflicts of interest review: regulators are also watching these transactions.

A regular briefing for the alternative asset management industry

The continuation vehicle (or CV) has grown from a niche liquidity mechanism into a standard portfolio management tool in private equity, with increasing adoption in other asset classes. Jefferies 2025 Global Secondary Market Review records CVs at roughly 14% of sponsor-backed exits globally last year, up from 5% in 2021.

With growth has come increasing scrutiny. As we heard from ILPA (the Institutional Limited Partners Association – the leading industry body for LPs) at a briefing hosted at Travers Smith's offices, LPs have expressed growing concerns about CV misuse.

ILPA has revised its best practice guidance, little more than three years after its 2023 iteration. That's a measure of how quickly the landscape has shifted and is a response to LPs' growing concerns about GP-LP misalignment.

ILPA has retained a principles-based approach, but its guidance is now considerably more detailed. It has shifted tone – removing some of the more prescriptive elements in an earlier draft – to reflect the range and complexity of transactions in the market. Some LPs may balk at the additional flexibility this affords GPs, but ILPA wants GPs to feel able to commit to its principles.

The emphasis nonetheless remains squarely on LP interests: ensuring they sit at the centre of GP decision-making.

The structural conflict at the heart of CVs is well-established. A GP sits on both sides of the transaction – as seller on behalf of the existing fund and as buyer for the new vehicle. The guidance sets out two core principles:

GPs must explain the rationale for why the CV route serves the best interests of existing LPs; and
CVs should be a deliberate, considered choice, not a default option, and the GP must demonstrate it offers the best outcome for existing LPs.

The guidance also requires GPs to actively identify, manage and disclose conflicts. Generic disclosures and blanket waivers, it makes clear, are not sufficient or appropriate.

CVs should be a deliberate, considered choice, not a default option."

Disclosure and election periods. The guidance pushes for standardised disclosure to all transaction parties, with greater focus on price discovery. It sets minimum standards for election pack contents and other information to be made available to LPs and encourages GPs to use ILPA's own Continuation Fund Disclosure Template published earlier this year. The election period should be at least 20 clear business days, though more complex transactions may warrant longer. On pricing, a sufficiently competitive process may make a fairness opinion unnecessary. Where one is obtained, it must be useful and must be shared with LPs, who should feel able to challenge the valuation.

Economics. On economics, rolling LPs (that are following the transferred asset(s)) should, where possible, be no worse off than if the CV had not occurred. GPs are now asked to provide comparative modelling of fee and carry terms between the existing fund and the CV. A "significant and meaningful" portion of crystallised carry, related both to interests from selling LPs and returns on the GP's commitment, should be rolled into the CV. This retreats from the 2023 guidance which envisaged 100% of the carry rolling over and reflects the reality that many funds, particularly those operating a whole fund waterfall, may not yet be in carry.

"Remain in place". The guidance moves away from requiring GPs to offer a "status quo" option, devoting a significant section to what it now calls the "remain in place" option for LPs who wish to stay in the existing fund and retain exposure to the CV's assets without rolling into the new vehicle. ILPA recognises that a default right to remain in place may not always serve the best interests of existing LPs and leaves it to the GP to decide whether it is appropriate to offer it as an option.

LPAC role. The role of the LP advisory committee (LPAC) is clarified. Its function is to assess whether the GP has properly identified, disclosed and managed its conflicts – not to negotiate CV terms. Responsibility for a fair and transparent process remains with the GP, though LPACs are encouraged to withhold or condition consent where that standard is not met. Early engagement with the LPAC is essential. The guidance sets out recommended meeting processes and disclosure requirements. For complex transactions, it recommends that the GP should allow the LPAC independent legal or expert advice at the fund's expense – something which is not yet a consistent feature of LPAC terms and could delay transactions if the LPAC is brought in too late.

Regulators are watching this market too. The UK regulator, the FCA, published feedback on its conflicts of interest review just days after the ILPA guidance was published (our detailed note on the feedback is here). It identified CVs explicitly as an area of concern, noting that GPs need to be able to demonstrate that the competing interests of the different investors have been fairly balanced and that there should not be over-reliance on disclosure or investor consent. The FCA wants to see enhanced controls, independent challenge, robust valuation practices and enhanced LP engagement, mirroring themes running through the new ILPA guidance.

The new guidance largely codifies current good practice that we see in the market. That means that much of it will feel familiar to GPs running strong processes. For LPs, it provides a benchmark against which to measure GP conduct – and a practical framework to guide them through the process. If GPs put LP-GP alignment at the heart of their decision-making, this guidance is flexible enough to structure future deals that work for everyone – and no reason for ILPA to return to the guidance in another three years' time.

ILPA For Insights