Building a Defensible Process: GP-Led Continuation Fund Transactions in 2026
Introduction and Executive Summary
General partners (“GPs”) executing continuation vehicle (“CV”) transactions in 2026 face three converging pressures that demand unprecedented attention to process architecture. First, the vacatur of the Private Fund Advisers Rule by the Fifth Circuit Court of Appeals in June 2024 has left the regulatory landscape in a state of principles-based uncertainty, with the general anti-fraud provisions of the Investment Advisers Act remaining fully operative but without the bright-line safe harbors that the rule would have provided.1 Second, the Institutional Limited Partners Association (“ILPA”) has accelerated its self-regulatory framework, publishing a Disclosure Template in January 2026 and proposed updated guidance in June 2026 that collectively establish an increasingly detailed set of governance expectations.2 Third, the emergence of private litigation risk—exemplified most prominently by a sovereign wealth fund’s challenge to a GP-led continuation vehicle transaction in the Delaware Court of Chancery in late 2025—has demonstrated that limited partners (“LPs”) are prepared to challenge GP conduct through both judicial proceedings and arbitration.3
GPs who invest in defensible process architecture—grounded in fiduciary principles, informed by industry best practices, and documented with the rigor expected in contested proceedings—will be best positioned to execute CV transactions efficiently while minimizing post-closing exposure. This article provides a practical process roadmap for fund formation lawyers and GPs navigating this evolving landscape.
Market Context
The secondary market reached approximately $240 billion in total volume in 2025, with GP-led transactions accounting for 48% of that total.4 CVs represented the dominant structuring mechanism within the GP-led segment, constituting between 86% and 89% of GP-led activity. Single-asset CVs alone accounted for 53% of CV volume within the GP-led segment. At the broader market level, CVs represented approximately 19% of all private equity asset sales in the first half of 2025.
Industry projections suggest that between 30% and 40% of all private equity exits in 2026 and 2027 could take the form of CV transactions.5 This trajectory reflects the maturation of the CV from a niche liquidity tool into a mainstream portfolio management mechanism deployed for high-performing, mid-life assets rather than exclusively for tail-end or troubled positions.
At this scale, governance and process integrity cease to be secondary considerations. When CVs constitute nearly one-fifth of all PE asset dispositions—and are projected to approach two-fifths—the structural conflicts inherent in these transactions acquire systemic significance. The framework for managing those conflicts must evolve correspondingly.
The Regulatory Landscape After the Fifth Circuit
The Fifth Circuit’s decision in National Association of Private Fund Managers v. SEC vacated the Private Fund Advisers Rule (the “PFAR”) in its entirety in June 2024, eliminating the prescriptive governance requirements—including mandatory fairness or valuation opinions for adviser-led secondary transactions, quarterly statements, and restricted activities provisions—that the SEC had promulgated.6 However, the general anti-fraud provisions of the Investment Advisers Act (the “Advisers Act”) remain fully operative and unaffected by the vacatur. Sections 206(1) and 206(2) of the Advisers Act impose a non-waivable fiduciary duty on investment advisers that encompasses both a duty of care and a duty of loyalty, with the duty of loyalty in turn requiring full and fair disclosure of material conflicts of interest.7 This fiduciary obligation cannot be eliminated by contract; a client may consent to a specific conflict only after receiving full and fair disclosure of its nature and implications. The absence of the PFAR’s bright-line safe harbors means that GPs now operate under a principles-based standard with inherently less predictability regarding what specific procedures satisfy their fiduciary obligations. GPs who treat the vacatur as a basis to reduce process rigor face material regulatory and litigation risk.
The regulatory environment also includes ongoing reporting obligations under Form PF. In 2023, the SEC adopted amendments to Form PF adding Section 6, which requires private equity fund advisers that file Form PF to submit quarterly event reports within 60 days after quarter-end upon the occurrence of specified events, including adviser-led secondary transactions.8 In April 2026, the SEC and CFTC jointly proposed further amendments to Form PF, and, as part of that proposal, the SEC proposed eliminating Section 6 quarterly event reporting in its entirety, including reporting for adviser-led secondary transactions.9 The comment period for the April 2026 proposal closed on June 23, 2026, and the proposal remains subject to final agency action. Until final rules are adopted, Section 6 quarterly event reporting remains operative and firms should maintain their reporting infrastructure accordingly.
The SEC’s Division of Examinations has repeatedly focused on private-fund adviser conflicts, disclosure, valuation, fee and expense practices, and related compliance controls, with its FY 2025 priorities expressly identifying adviser-led secondary transactions as an examination focus. The Advisers Act fiduciary duty, enforced by the SEC through examinations and enforcement actions, remains the principal federal securities-law constraint on private fund adviser conduct in CV transactions, particularly with respect to conflicts of interest, disclosure, valuation, allocation, and consent. State-law and contractual remedies, including in Delaware and, where applicable, New York-governed disputes, provide an additional layer of protection for LPs, but their scope depends heavily on the fund’s governing documents, applicable law, and dispute-resolution provisions.10 Together, these overlapping frameworks—federal fiduciary duty enforcement by the SEC under the Advisers Act, and state-law and contractual claims available to LPs in private actions—define the governance environment for private fund advisers and GPs in the post-PFAR landscape.
ILPA’s Evolving Framework
A. The 2023 Guidance
ILPA’s 2023 Continuation Fund Guidance established two foundational principles that continue to anchor the institutional LP community’s expectations for CV governance: first, that the process should be designed to maximize value for existing LPs in the selling fund; and second, that rolling LPs should be no worse off in the CV than they were in the predecessor fund.11 These principles, while stated at a high level of generality, have proven remarkably durable as organizing concepts and are reflected throughout the subsequent ILPA publications.
B. The January 2026 Disclosure Template
On January 27, 2026, ILPA published its Continuation Fund Disclosure Template (the “CV Disclosure Template”), a standardized framework specifying the categories of information that GPs should provide to LPs and Limited Partner Advisory Committee (“LPAC”) members when presenting a proposed CV transaction.12 The CV Disclosure Template operationalized the 2023 principles into a concrete disclosure checklist, addressing topics including commercial rationale, conflicts of interest, valuation methodology, GP economics, LP election mechanics, and post-closing governance. In May 2026, ILPA, in partnership with Coller Capital, published a set of illustrative responses demonstrating how the CV Disclosure Template might be completed in practice using mock single-asset and multi-asset CV transactions, providing the market with a practical reference point for implementation.13
C. The June 2026 Proposed Updated Guidance
On June 24, 2026, ILPA released its Proposed Updated Continuation Vehicle Guidance for public comment, with the comment period closing on August 5, 2026.14 The proposed guidance articulates three general principles—that GPs should demonstrate the transaction serves the best interests of existing LPs, that the CV is a deliberate choice that maximizes value compared to alternatives considered, and that rolling LPs should be no worse off—alongside four strategic objectives: improved conflicts management, stronger evidenced commercial rationale for pursuing a CV over alternative exit paths, fair and defensible pricing established through genuine market-clearing mechanisms, and robust process integrity throughout the transaction lifecycle. The addition of a requirement that GPs demonstrate the CV is a deliberate choice over considered alternatives, rather than a default exit mechanism, represents a meaningful evolution from the 2023 framework.
The operational requirements proposed in the June 2026 guidance are substantially more prescriptive than the 2023 guidance. Building on the 2023 recommendations for early LPAC engagement and LPAC access to independent advisors funded as a fund expense, the 2026 guidance introduces or strengthens requirements including: mandatory use of the CV Disclosure Template at multiple stages of the process; GP adoption of a formal CV policy shared with LPs during fundraising and on request; comprehensive conflicts disclosure covering all economic interests of the GP and its affiliates in both the selling and acquiring vehicles; standardized LP communications providing consistent information to all constituencies; in camera LPAC deliberation sessions without the GP present; anonymized disclosure of all final-round bids (including pricing structure and key commercial and legal terms); expense allocation on a basis reflecting who benefits from the transaction; and a recommendation against presumptive conflict waivers in limited partnership agreements (“LPAs”) that would authorize CV transactions without transaction-specific LPAC consent.
As a threshold matter, ILPA guidance has no binding legal force—it does not create enforceable obligations and does not carry the weight of statute, regulation, or judicial precedent. However, the guidance increasingly functions as the practical standard against which LPACs evaluate GP conduct and institutional investors assess governance quality when making allocation decisions. GPs who depart from ILPA’s recommendations in material respects should articulate a principled basis for doing so and document the rationale, recognizing that departure may be commercially justified but should be deliberate rather than inadvertent. The June 2026 guidance itself reinforces this expectation, providing that deviations from its core principles should be explained in full to existing LPs.
The Emergence of Private Litigation Risk
A. A Recent Delaware Court of Chancery Challenge
In late 2025, a sovereign wealth fund filed suit in the Delaware Court of Chancery against affiliates of a private equity sponsor, seeking a preliminary injunction in aid of arbitration to block a proposed sale of a portfolio company stake to a sponsor-affiliated CV.15 The complaint presents a series of allegations that, if ultimately proven, would illustrate several categories of process failure.
According to the complaint, the plaintiff alleged that the GP engaged in material information asymmetry by representing to the LPAC that there were no viable IPO or M&A exit prospects for the asset while simultaneously presenting IPO upside potential to prospective CV investors. The plaintiff further alleged that the GP compressed the LPAC approval process, limiting advisory committee members to approximately 20 minutes for questions during the presentation. The complaint noted that only three of the fund’s 43 LPAC members voted to approve the transaction, with the majority abstaining. Additionally, the plaintiff alleged that the GP failed to offer a status-quo roll option, instead requiring rolling investors to accept new fee and carried interest terms without an alternative to remain on existing economics.
B. The Legal Framework for Private Claims
Private litigation risk in CV transactions is principally a matter of state law, contract, and arbitration procedure, rather than a direct private damages remedy under Section 206 of the Advisers Act. Private plaintiffs cannot seek damages directly under Section 206, although Section 215 may provide a limited contract-voiding or rescission-type remedy where its requirements are satisfied.16 Nevertheless, Section 206 supplies an important federal regulatory baseline: it prohibits fraudulent conduct by investment advisers and anchors the SEC’s fiduciary-duty framework for conflicts, disclosure, and informed consent. That framework, in turn, informs SEC scrutiny of conflict-sensitive private fund practices such as valuation and allocation.
The direct litigation avenue for LPs is typically state-law or contractual claims, including breach of the LPA, breach of any retained fiduciary duties, breach of the implied covenant of good faith and fair dealing, and related disclosure or consent-based theories. In Delaware limited partnerships, that analysis is usually contract-first because Delaware RULPA permits the partnership agreement to expand, restrict, or eliminate fiduciary duties, subject to the nonwaivable implied covenant of good faith and fair dealing.17 Accordingly, CV disputes often turn on the LPA’s conflict-approval mechanics, LPAC provisions, disclosure obligations, exculpation language, and arbitration or forum-selection clauses. The practical implication is that GPs should structure CV processes assuming their conduct may be scrutinized under the Advisers Act by the SEC and under applicable state-law and contractual standards in private LP litigation or arbitration.
Practical Process Recommendations for GPs and Fund Counsel
This section addresses the principal governance and process considerations in the order they typically arise in a CV transaction: from the threshold structural conflict (Section A), commercial rationale (Section B), and LPA drafting (Section C), through GP economics (Section D), LPAC engagement (Section E), valuation (Section F), timeline management (Section G), information parity (Section H), election options (Section I), expense allocation (Section J), and process documentation (Section K), concluding with ancillary considerations including co-investments (Section L), tax structuring (Section M), and side letter compliance (Section N).
A. The Inherent Conflict: The GP on Both Sides
The structural conflict in a CV transaction is both fundamental and irreducible. The GP simultaneously owes fiduciary duties to the selling fund’s LPs—whose interests are served by maximizing the transfer price—and possesses direct economic incentives as the sponsor and manager of the acquiring vehicle, where a lower acquisition price generates greater upside potential. Unlike a conventional third-party exit, the GP does not exit the investment upon closing; rather, it retains management responsibility, resets its economic arrangements (management fees and carried interest), and continues earning compensation from the same assets. This conflict intensifies when the GP is a net buyer—committing additional capital beyond rolled-over carry and capital interest—because the GP’s personal economic interest in a lower price becomes more pronounced.
The GP’s economic conflicts are most visible in the transaction’s final economics. Carried interest crystallization (which will be affected by the existing fund’s distribution model—whether it is a “whole fund” European waterfall or a “deal-by-deal” American waterfall) allows the GP to lock in, and potentially cash out, accrued carry at the transfer price. That creates a direct financial benefit for the GP which depends on the valuation the GP itself influences. The bid process creates further tension: the GP selects the advisors, defines the buyer universe, and controls the timeline, all of which shape the competitive dynamics that determine the price. Lead investor bids may also include incentives directed at the GP rather than the existing fund, such as a stapled commitment to the GP’s next flagship fund, that can skew the GP’s evaluation of competing bids away from the interests of existing LPs. ILPA’s proposed guidance provides that all conflicts affecting final economics where the GP may benefit independently of LPs should be identified, disclosed, mitigated where possible, and approved by the LPAC. The conflict is most acute in single-asset CVs targeting a fund’s highest-performing investments, where the GP controls every dimension of the process and there is no independent seller negotiating at arm’s length. The discipline of process—competitive pricing, independent valuation, adequate timelines, information parity, and meaningful LPAC engagement—must substitute for the structural independence that a third-party sale would otherwise provide.
Beyond the GP’s own economic conflicts, ILPA’s proposed guidance identifies several additional conflict subtypes that practitioners should address with specificity. These include LPAC members acting as lead investors—where an affiliated secondaries business may bid on the CV assets with conflicting pricing incentives—requiring the GP to notify other LPAC members and ensure full disclosure so the LPAC can assess the conflict. GP counsel conflicts arise where election agreements increasingly include “fund counsel” waivers requiring LPs to acknowledge that the firm represents only the GP and owes no duty to existing LPs; the guidance provides that if existing LPs cannot rely on or derive benefit from such advice, it should not be charged as a fund expense. Repeated CV transactions within the same portfolio may also heighten concerns that GP incentives—such as resetting management fees and carried interest—are overriding existing LPs’ best interests, and the guidance recommends that GPs provide stronger evidence of GP-LP alignment in later CV transactions.
B. The Commercial Rationale: Why a CV and Not a Third-Party Exit?
ILPA’s proposed guidance requires the GP to articulate an evidenced commercial rationale for pursuing a CV over available exit alternatives, including third-party sale, IPO, or distribution in kind. The commercial rationale functions as the threshold justification for the transaction: it explains why the GP’s continued involvement with the asset serves LP interests rather than merely GP interests. The historical evolution of CVs is instructive. These structures originated as mechanisms for managing tail-end or troubled assets where conventional exits had failed. Today, they are increasingly deployed for high-performing, mid-life assets with substantial remaining value creation potential. Two transactions illustrate this evolution: the CD&R/Belron transaction in December 2021, a single-asset CV valued at approximately €21 billion involving a global automotive glass business, demonstrated that CVs could serve as credible exit mechanisms for market-leading assets.18 More recently, the Accel-KKR/isolved transaction, a $1.9 billion single-asset CV that closed in August 2025 for an enterprise software provider backed since 2011, featured a major institutional secondaries investor as lead investor and represented a novel structure as a second CV for the same underlying asset.19
ILPA’s proposed guidance frames the CV as one option on a spectrum of portfolio management tools, including follow-on investments and recycling, term extensions, mid-life co-investments, tender offers, preferred equity, NAV facilities, cross-fund transactions, and strip sales—each varying in complexity, time, and cost burden. According to the proposed guidance, the GP must explain why a strip sale or another GP-led solution is not more appropriate before proceeding with a CV. Practitioners drafting LPAC presentations should anticipate that sophisticated LPs will expect this alternatives analysis as a threshold element of the commercial rationale.
A strong commercial rationale alleviates the inherent conflict by identifying specific value creation opportunities—such as planned acquisitions, operational improvements, or market timing considerations—that require continued sponsor involvement and justify the GP’s retention of the asset. A weak or pretextual rationale exacerbates the conflict by suggesting that the GP’s primary motivation is economic self-interest (fee generation, carry reset) rather than portfolio management in the service of LP returns.
The allegations in the Delaware Chancery action discussed in Section V illustrate how a commercial rationale can be fatally undermined. According to the complaint, the GP allegedly told the LPAC there were no viable exit alternatives while simultaneously representing IPO upside to secondary buyers considering investment in the CV. If proven, such contradictory representations would transform the stated rationale from a legitimate portfolio management justification into a pretext for self-dealing. Practitioners should note the lesson: the commercial rationale must be internally consistent across all constituencies, and the GP cannot present one version of the asset’s prospects to existing LPs and a different version to prospective investors.
As a practical matter, GPs should document the commercial rationale contemporaneously at the point of initial consideration, present it to the LPAC as the opening element of the transaction proposal, and explain with specificity why alternative exit paths were considered and rejected. The rationale should be testable—that is, it should identify specific milestones, value creation initiatives, or market conditions that can be evaluated against actual outcomes post-closing.
C. LPA Drafting Considerations
The LPA’s treatment of GP conflicts and CV authority represents the first line of governance architecture. GPs and fund counsel should approach LPA drafting with an awareness that CV provisions will be scrutinized in evaluating GP authority and process adequacy.
First, LPA provisions should avoid anticipatory language that creates presumptive waivers of conflicts of interest or LPAC consent rights in connection with future CV transactions. ILPA has consistently disfavored such provisions: the 2023 guidance recommended against anticipatory continuation fund language in LPAs that includes a presumptive waiver of conflicts, and the proposed 2026 guidance goes further, recommending that GPs avoid launching new funds with LPA terms that pre-clear conflicts associated with CV transactions and instead mitigate and clear all conflicts as they arise in specific transactions. A provision stating that LPs “acknowledge and consent to” future GP-led secondary transactions without specifying the terms, process, or governance requirements of such transactions is likely to be contested and may not withstand regulatory or judicial scrutiny.
Second, LPA provisions addressing CV transactions should provide sufficient clarity for all parties without unduly restricting or prescribing either the rationale or the exact means or parameters of the CV formation or offering. ILPA’s proposed 2026 guidance endorses this balanced approach, recognizing that overly rigid LPA language can constrain a GP’s ability to structure a transaction that serves the existing fund’s interests, while overly permissive language—particularly broad “alternative investment vehicle” provisions—may be used to compress timelines or bypass governance protections in ways the parties did not contemplate at fund formation.
Third, LPA drafters should consider defining the scope of LPAC consent with specificity, distinguishing between consent to the transaction itself, consent to specific economic terms, and consent to conflicts, and specifying the information that must be provided to the LPAC as a condition of any consent or waiver.
Fourth, the LPA should not permit the GP to bypass the LPAC entirely for CV transactions. Even where the GP believes it has contractual authority to proceed without LPAC approval, the prudent course—and the approach ILPA guidance endorses—is to treat LPAC engagement as a governance best practice that supports defensibility regardless of whether it is contractually mandated. For side letter considerations specific to CV transactions—including carry-over of existing side letters and the emerging practice of CV-specific side letter protections—see Section N below.
D. GP Economics and Alignment
Market practice has increasingly converged toward requiring the GP to reinvest both its crystallized carried interest and the returns on its existing sponsor commitment into the CV. ILPA’s proposed guidance treats carry rollover as a near-absolute expectation: the GP should reinvest 100% of accrued carried interest absent a specific justification, such as accommodating the retirement of existing management team professionals. Where the GP does not fully reinvest, it should explain why and demonstrate how the CV’s incentive structure maintains alignment with rolling LPs. The GP’s sponsor commitment is addressed separately: the guidance expects full reinvestment of returns on the existing commitment and notes that an increased commitment to the CV is common market practice and a meaningful alignment signal.
Data from 2024 and 2025 indicates that approximately 80% of CVs included GP commitments of 5% or more of vehicle size.20 However, ILPA’s proposed guidance cautions that headline commitment figures may not reflect genuine alignment: where a GP “materially de-risks”—maintaining its headline sponsor commitment but funding it via third parties, reducing true “skin in the game”—this should be clearly disclosed. Asking LPs to extend exposure while the GP de-risks may be perceived as misalignment.
Where the GP commits additional capital beyond its rolled-over interest into the CV, the GP becomes a net buyer in the CV transaction. This creates an inherent tension with the conflicts analysis: net-buyer status simultaneously signals conviction in the asset (supporting alignment with LP interests) and creates a direct economic incentive to acquire at the lowest possible price (exacerbating the core conflict). GPs should address this tension directly in LPAC presentations, explaining how the net-buyer position serves LP interests through meaningful alignment while acknowledging the pricing incentive and identifying the specific safeguards—competitive process, independent valuation, adequate timelines—designed to address it.
E. LPAC Engagement and Governance
ILPA’s proposed guidance reaffirms the 2023 recommendation for early LPAC engagement—at the point of initial consideration rather than after terms have been substantially negotiated with a secondary buyer. This timing recommendation reflects a structural insight: an LPAC that is consulted only after the GP has invested significant time and resources in negotiating definitive terms faces implicit pressure to ratify rather than genuinely deliberate. Early engagement allows the LPAC to evaluate the commercial rationale, the competitive process design, and the GP’s economic proposals before significant transaction momentum has developed.
The proposed guidance further recommends that the LPAC be afforded the opportunity for in camera deliberation—without GP management present—and with access to independent legal and financial advisors retained as a fund expense rather than at the LPAC members’ individual cost. These recommendations address the practical reality that LPAC members in many funds lack the institutional support necessary for genuinely independent evaluation of complex GP-led transactions. GPs who resist funding independent LPAC advisors should recognize that this resistance may be interpreted as evidence that the GP prefers an uninformed or resource-constrained oversight body—a characterization that would be damaging in any subsequent dispute.
The 2026 guidance’s Appendix D establishes a detailed recommended LPAC meeting process that practitioners should treat as a practical checklist. LPAC materials should accompany the meeting notice and be sent simultaneously to all LPs regardless of LPA requirements, with at least ten business days given before the CV conflicts vote. The GP should open the meeting by requesting disclosure of all conflicts—both its own and those of any LPAC member—before presenting the commercial rationale. LPAC members should be offered separate in camera time, followed by Q&A with the GP where no “cherry picking” of LPAC members is permitted in raising queries. Conflicted LPAC members should be excluded from the vote. Post-meeting, LPAC minutes and accompanying materials should be circulated to all LPs, and the GP should convene an all-LP town hall with Q&A and a comparative returns model.
Practitioners should also attend to the mechanics of LPAC composition, quorum, and voting standards as they apply to CV consent. Many LP agreements define LPAC consent by reference to a majority of members present at a meeting or responding to a written consent solicitation, without requiring a minimum participation threshold. As illustrated by the allegations in the Delaware Chancery action discussed in Section V—where only three of 43 members reportedly voted to approve—low participation rates can undermine the legitimacy of the approval even where it technically satisfies the contractual standard.
F. Valuation, Fairness Opinions, and Market-Clearing Mechanisms
Independent fairness opinions—typically provided by firms such as Houlihan Lokey or Kroll—have become standard practice in CV transactions. A fairness opinion provides a professional assessment that the transfer price falls within a range of financial fairness to the selling fund’s LPs. Where significant time elapses between price-setting and closing (often 60 to 120 days in complex transactions), a second-look valuation—a supplemental appraisal conducted closer to closing—has emerged as a market practice to confirm that the transfer price remains within a range of fairness given intervening developments. However, a fairness opinion is necessary but not sufficient as a governance safeguard. The opinion addresses price in isolation; it does not opine on the fairness of management fees, carried interest arrangements, governance terms, asset selection, or the totality of the economic exchange between selling LPs and the CV. Nor does a fairness opinion substitute for genuine price discovery through competitive tension.
GPs should consider structuring the CV process to include a competitive market-clearing mechanism—analogous to a controlled auction in the M&A context—that establishes the transfer price through genuine third-party price discovery rather than relying solely on a GP-commissioned fairness opinion. Where secondary buyers bid competitively for the right to invest in the CV, the resulting price reflects actual market demand rather than a single appraiser’s judgment. A market-tested price combined with a confirmatory fairness opinion produces substantially stronger defensibility than a fairness opinion standing alone. The competitive process also helps establish key economic terms—such as governance rights, fee arrangements, and co-investment allocations—through arm’s-length negotiation with a sophisticated secondary buyer whose interests are not aligned with the GP’s.
ILPA’s proposed guidance strengthens the valuation framework by requiring GPs to share the valuer’s engagement terms with LPs and to provide LPs access to the full valuation report with sufficient time to engage with the valuer directly. Any fee incentives agreed by the GP with the valuer must be disclosed to LPs, addressing the concern that GP-commissioned fairness opinions may lack genuine independence. The guidance further recommends that GPs offer the LPAC the option to appoint their own independent financial advisor to assess whether a competitive bid process was run, with that advisor’s costs borne as an existing fund expense and the resulting advice shareable with all LPs. Additionally, the GP should provide all LPs with an anonymized summary of all final-round bids, including pricing structure (e.g., cash and non-cash elements, deferrals) and key commercial and legal terms and conditions, along with a clear rationale for selecting the winning bid.
Representations and warranties insurance (“RWI”) has emerged as an additional process-support mechanism in GP-led transactions, with industry estimates suggesting 20% to 30% adoption in 2024 and growing utilization in 2025 and 2026.21 RWI serves both sides of the transaction: it allows the selling fund to cap its liability under the purchase agreement and efficiently distribute proceeds at closing, while providing the secondary buyer with a direct recovery mechanism for breaches of representations and warranties that does not depend on pursuing indemnity claims against the GP-affiliated seller. Market practice has converged toward the buyer paying the RWI premium, though retention allocation remains more situational and subject to negotiation. From a process-defensibility perspective, RWI also demonstrates that the GP has not structured the transaction to avoid post-closing accountability, and the insurer’s underwriting of the representations provides an independent assessment of the quality of disclosure being made about the asset. GPs should evaluate RWI as a standard component of CV process architecture rather than as an exceptional accommodation.
G. Timeline Management
Compressed timelines represent one of the most frequently alleged process deficiencies in GP-led transactions. The GP controls the transaction calendar and faces commercial incentives to move quickly. However, artificially compressed timelines restrict the ability of LPs and LPAC members to evaluate information, obtain independent advice, and make informed election decisions. GPs should establish and adhere to minimum timelines that provide at least 30 business days for LP elections (the standard set by ILPA’s proposed 2026 guidance, which is an increase from the 20-business-day minimum ILPA recommended in 2023), measured from provision of the complete election pack and with unrestricted data room access throughout. The LPAC should receive materials at least 10 business days before the CV conflicts vote. Where timeline compression is commercially necessary, the GP should document the specific business justification and ensure that essential process elements are not sacrificed to scheduling convenience. ILPA’s proposed guidance specifically cautions that indirect LPA provisions—such as “alternative investment vehicle” clauses—should not be relied upon to justify a compressed process.
H. Information Parity
The obligation to provide consistent, accurate information to all transaction constituencies is perhaps the single most important process discipline in a CV transaction. Information asymmetry—where the GP provides different or more favorable information to prospective secondary buyers than to existing LPs or the LPAC—represents both a breach of the Advisers Act fiduciary duty and the most readily provable category of process failure in subsequent litigation. The allegations in the Delaware Chancery action discussed in Section V, if proven, would illustrate this vulnerability: contradictory representations to different constituencies regarding the asset’s exit prospects would constitute direct evidence of the information asymmetry that fiduciary duty is designed to prevent.
GPs should implement information controls ensuring that any material information provided to prospective CV investors is simultaneously available to LPAC members and, to the extent practicable, to all LPs through the election materials. This includes financial projections, market analyses, potential exit scenarios, and any information regarding the asset’s prospects that could be material to an investment or election decision.
ILPA’s proposed guidance introduces specific mechanisms to enforce information parity. GPs should grant existing LPs access to the same data room as lead and syndicate CV investors. Where additional confidentiality applies to certain materials—such as proprietary models—access terms should be agreed with LPs in advance of the election period commencing, rather than used as a basis to restrict access unilaterally. GPs should also utilize the CV Disclosure Template as a tool for consistent and transparent LP communication, with a first iterative version provided to all LPs at the same time as the GP holds its initial LPAC discussions and a completed version delivered with the final election materials in language capable of being understood by a non-expert audience.
I. Election Options: From “Status Quo” to “Remain in Place”
Understanding the LP election framework requires distinguishing between two concepts that may be conflated but are structurally distinct. Under ILPA’s 2023 guidance, the “status quo” option referred to the right of rolling LPs to participate in the CV on the same economic terms as the predecessor fund—no increase in management fee rate or carried interest, no decrease in the preferred return hurdle, and no crystallization of carry. The “status quo” option assumed the LP would enter the new CV; it protected the LP’s economics within it. ILPA’s proposed 2026 guidance introduces a categorically different concept: the “remain in place” option, which allows existing LPs to elect to continue to have exposure to the target assets through the existing legal fund structure rather than the new CV structure, with no change in their legal or economic terms. “Remain in place” does not mean rolling into the CV on old terms; it means not moving to the CV at all.
ILPA’s proposed 2026 guidance effectively unbundles what was previously a single concept into two separate protections operating at different structural levels. The “remain in place” option addresses whether LPs must move to the new vehicle at all, and is one of five distinct election options identified on a comply-or-explain basis: (i) remain in place through the existing fund; (ii) sell; (iii) roll over without a top-up commitment; (iv) roll over with a fresh capital commitment on CV investor terms; and (v) a sell and rollover combination, the split of which should be freely determined by existing LPs. The guidance states that the omission of any of these options should be explained to existing LPs. Separately, the 2026 guidance carries forward the substance of the 2023 “status quo” economic protections as a general principle applicable to all rolling LPs regardless of which election option is offered: there should be “no overall increase in management fees or carried interest for rolling LPs,” and the GP should provide comparative modeling demonstrating that rolling LPs’ position is no worse than it would have been without the CV transaction. In addition, any capped allocation agreed with the lead investor that effectively limits the rolling LPs’ participation should be disclosed as part of the election materials.
GP resistance to the “remain in place” option is commercially grounded, and ILPA’s proposed 2026 guidance itself acknowledges the material costs, execution complexity, and structural complications that this option introduces. Dividing asset ownership between the existing fund and the CV tends to reduce competitive tension in the bidding process, since lead investors generally prefer acquiring complete ownership of the target assets. The existing fund is left holding a minority position that it must eventually exit—typically at a discount to the value of a controlling interest—and may need to extend its term to match the CV’s maturity, incurring ongoing costs borne by existing LPs during the extension period. The guidance also notes the risk that the eventual exit of the minority stake may itself require a related-party transaction with the CV, raising fresh governance concerns.
Despite these challenges, the proposed guidance places the burden on the GP to explain and justify its decision not to offer a “remain in place” option, and draws a useful structural comparison with strip sales as a less complex alternative for LPs seeking to retain exposure on existing terms. As a practical matter, the GP’s decision whether to offer this option should weigh the strength of the commercial rationale, the competitiveness of the pricing process, the GP’s net economic position, the overall litigation risk assessment, and the material transaction costs and execution complexity that this structure adds. The case for requiring a “remain in place” option strengthens where the CV is structured to avoid crystallizing underperformance, where no competitive process establishes an independent price, or where the GP is a net buyer with pronounced incentives to acquire at a depressed valuation—circumstances in which the absence of meaningful election choice compounds the underlying conflict. Conversely, where the GP can demonstrate that the structural and economic costs of a “remain in place” option would outweigh its benefits to existing LPs, a well-documented explanation supported by the alternatives analysis may provide adequate justification for declining to offer it.
As noted above, the rolling LP economic protections under ILPA’s proposed 2026 guidance—which carry forward the substance of the 2023 “status quo” concept—apply regardless of whether a “remain in place” option is offered. For LPs who do choose to roll, the 2026 guidance requires that there be no overall increase in management fees or carried interest, and that the GP demonstrate through comparative modeling that rolling LPs are no worse off than they would have been without the CV transaction, including having regard to factors such as management fee step-downs contemplated under the existing fund’s terms. GPs may offer CV participation on the same terms as new CV investors, on a “status quo” basis that closely replicates existing fund economics, or a mix of both—but the overall economic result for rolling LPs must satisfy the “no worse off” standard. The proposed guidance extends this protective principle beyond economics to governance: rolling LPs should have the option to invest through a vehicle offering no less than equivalent investor rights and protections as the existing fund, and any erosion of legal protections—such as reduced LPAC authority, narrower reporting obligations, or more restrictive GP removal standards—should be fully disclosed and explained in the election materials.
J. Expense Allocation
ILPA’s proposed 2026 guidance establishes a detailed expense allocation framework grounded in the principle that CV transaction costs should be “clearly disclosed to all LPs and allocated fairly among the acquirer, selling LPs, rolling LPs, and the GP based on who benefits.” CV formation costs are typically borne equally by CV investors, including rolling LPs but excluding lead investors, and are typically capped—with current market convergence around 0.75% to 1%—and the GP should bear its pro rata share. Transaction costs, including regulatory costs and transfer taxes, are typically shared equally between the existing fund and the CV, though the specific allocation may be negotiated and should be fully disclosed. Any GP incentives—such as affiliate advisory fees or success fees for advisors—linked to a CV transaction must be transparently disclosed and reviewed by the LPAC as part of its conflicts clearance determination. Any other financial incentives received by the GP as part of the CV transaction should offset the existing fund’s management fee in accordance with its LPA, and the GP should disclose details of this in full to existing LPs as part of the transaction. Critically, the proposed guidance provides that if a transaction does not proceed, only costs incurred after the LPAC was first made aware of the CV should be charged to the existing fund. The costs of any RWI are also typically shared between the existing fund and the CV, though this allocation is increasingly negotiated as part of the broader transaction cost discussions and should be fully disclosed (for the process-defensibility rationale for RWI, see Section F above). Lead investor expenses present a separate allocation issue: it is common for the CV to bear the lead investor’s legal costs, but typically subject to a negotiated cap. The proposed guidance recommends that GPs ensure existing LPs are made aware of how lead investor expenses will be allocated, with the agreed position disclosed through the CV Disclosure Template and in the final election pack materials.
ILPA’s 2023 guidance separately recommended that CV operating costs be capped or otherwise subject to LPAC monitoring. This specific recommendation was not carried forward into the proposed 2026 guidance. GPs may view this omission as recognition that standard annual audit and LP reporting, combined with the LPAC’s general oversight function, provide sufficient transparency for ongoing operating costs without introducing a cap mechanism that could constrain legitimate operational expenditures. Whether the final guidance reinstates an operating cost cap recommendation remains to be seen.
K. Process Documentation and Post-Closing Protocols
GPs should maintain contemporaneous documentation of all material process decisions, deliberations, and communications throughout the CV transaction. This documentation serves dual purposes: it demonstrates process integrity in any subsequent regulatory examination, and it creates the evidentiary record necessary to defend the transaction in private litigation or arbitration. Key documentation elements include board and investment committee minutes reflecting the commercial rationale analysis, LPAC presentation materials and minutes of LPAC deliberations, records of information provided to all constituencies (with date-stamps confirming simultaneous availability), valuation materials and fairness opinion engagement terms, election materials and LP communications, and a final process memorandum summarizing the timeline, key decisions, and governance steps completed. Post-closing, the GP should maintain a protocol for ongoing LP reporting that tracks the CV’s performance against the projections presented during the transaction process.
ILPA’s proposed 2026 guidance introduces specific modeling requirements that should form part of the contemporaneous documentation package. When first testing a CV transaction with LPs, the GP should provide an upfront cost-benefit model comparing returns through the existing fund against the CV, net of transaction costs. The GP should also model the CV’s impact on the existing fund’s performance, including the impact on the carry waterfall, and disclose whether the CV would cause the existing fund to enter carry. These models should be prepared and preserved as part of the transaction record, as they represent precisely the type of contemporaneous analysis that would be scrutinized in any subsequent dispute over whether the GP adequately justified the transaction to existing LPs.
L. Co-Investment Complications
CV transactions can create friction with existing co-investment arrangements—a practical issue that ILPA’s proposed 2026 guidance addresses directly. Co-investments typically offer LPs exposure to specific assets on preferential terms, including reduced or zero management fees and carried interest. However, many co-investment agreements were drafted without contemplating a CV exit and do not address how the co-investor’s economics should be treated if the underlying asset is transferred to a CV. In practice, GPs frequently offer co-investors reinvestment into the CV on its standard terms rather than preserving the preferential economics under which the co-investment was originally made—a result that co-investors may view as inequitable, particularly where they accepted concentration risk in exchange for those economics. The proposed guidance recommends early and parallel engagement with co-investors alongside main fund LPs, with equivalent access to information. For practitioners advising on new co-investment programs, the takeaway is forward-looking: co-investment agreements should expressly address how a CV exit will be treated, including whether co-investors will have independent election rights and whether their existing economics will be preserved in the event of a rollover.
M. Tax Structuring Considerations
Although a comprehensive treatment of tax structuring is beyond this article’s scope, practitioners should note that ILPA’s proposed 2026 guidance expects GPs to provide a clear explanation of the tax structure and high-level tax guidance on selling versus rolling, typically in a tax structuring memorandum included in the election pack. Key distinctions include “tax-free rolls,” where no tax loss or gain is crystallized and the original cost basis is retained, and “after-tax rolls,” where the rollover amount is net of any tax withheld or payable. GPs are not obligated to optimize tax outcomes for all investors, but they should ensure that side letter protections addressing tax sensitivities are adhered to when structuring roll options, and they should explain how the CV structure continues to allow for tax-efficient repatriation of proceeds.
N. Side Letter Compliance and Carry-Over
ILPA’s proposed 2026 guidance makes clear that CV processes must comply with existing LP side letters. The guidance recommends that rolling LPs’ existing side letters carry over to the CV, and that GPs provide time during the election period for side letter discussions—recognizing the practical complication that many LPs will need to update their existing (and possibly dated) side letter to align with current reporting, risk, governance, and investment standards. ILPA also urges LPs to consider supplementing their standard side letter requests with protections specifically addressing CV transactions, such as requiring the GP to complete the CV Disclosure Template and ensuring a minimum review period prior to an election decision. Going forward, LP counsel may also want to include an express standard side letter request that the side letter carry over and apply to any CV in which the LP participates. Fund counsel should anticipate receiving such CV-specific side letter requests.
Conclusion
The convergence of regulatory uncertainty, ILPA’s increasingly prescriptive governance framework, and emerging private litigation risk demands a level of process discipline in CV transactions that substantially exceeds what market practice required even two years ago. GPs and fund counsel must recognize that the post-PFAR environment, while lacking bright-line regulatory requirements, imposes heightened expectations through the combined operation of the Advisers Act’s non-waivable fiduciary duty, the SEC’s sustained examination focus on GP-led restructurings, ILPA’s evolving best-practice standards, and the demonstrated willingness of sophisticated LPs to pursue legal challenges where process failures are perceived.
At the same time, the governance framework should not be understood solely through the lens of LP advocacy. GPs face legitimate commercial considerations—including the need for deal certainty, the economics of managing CVs, the expectation of meaningful GP capital commitment, and the reality that CVs often serve LP interests by preserving upside that premature exits would sacrifice. A defensible process is one that addresses the inherent conflict through structural safeguards—competitive pricing, independent valuation, adequate timelines, information parity, and meaningful GP alignment through capital commitment and carry rollover—while preserving appropriate GP discretion in portfolio management decisions.
ILPA’s proposed guidance, with a comment period closing on August 5, 2026, will establish the benchmark against which institutional investors evaluate GP conduct for the foreseeable future. The practical process considerations discussed in this article—spanning conflicts management, commercial rationale documentation, LPA drafting, LPAC engagement protocols, valuation and price discovery, election structuring, expense allocation, and the ancillary treatment of co-investments, tax, and side letters—identify the areas where GPs and fund counsel should focus their attention both in structuring individual transactions and in engaging constructively with the comment process. The guidance also reflects ILPA’s institutional maturation: alongside the narrative framework, ILPA published three ancillary tools—a GP Checklist, a Core LP Evaluation Questionnaire, and a detailed CV Transaction Timeline—that collectively transform abstract principles into standardized, auditable process frameworks. Institutional LPs are simultaneously building internal capabilities specifically designed for CV transactions, from adapted underwriting processes to expedited approval frameworks. GPs who engage substantively with the comment process have the opportunity to shape guidance that is both protective of LP interests and commercially workable for sponsors.
CVs represent a structural evolution in private equity portfolio management, not a passing trend. At the scale the market has now reached—approaching one-fifth of all PE asset sales and potentially two-fifths within two years—the governance infrastructure must evolve correspondingly. GPs who invest in process architecture today will benefit not only from reduced litigation and regulatory risk, but from enhanced ability to execute transactions efficiently, maintain LP relationships, and attract secondary capital at competitive terms.
1 National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024) (vacating the Private Fund Advisers Rule in its entirety).
2 See ILPA, Continuation Funds: Considerations for Limited Partners and General Partners (2023); ILPA, Continuation Fund Disclosure Template (Jan. 27, 2026); ILPA, Proposed Updated Continuation Vehicle Guidance (June 24, 2026).
3 See Verified Complaint for Preliminary Injunction in Aid of Arbitration, C.A. No. 2025-1389-NAC (Del. Ch. filed Dec. 3, 2025).
4 Jefferies, 2025 Global Secondary Market Review (Jan. 2026) (reporting $240 billion total secondary volume and $115 billion GP-led volume); Lazard, 2025 Secondary Market Report (Feb. 2026) (reporting $233 billion total and $116 billion GP-led volume; CV prevalence and single-asset CV share data drawn from Lazard unless otherwise noted).
5 CAIA Association, The Continuation Vehicle Boom (Feb. 2026); see also Jefferies Global Secondary Market Review (Jan. 2026) (projecting continued growth in GP-led share of secondary market).
6 National Association of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024).
7 Investment Advisers Act of 1940, Sections 206(1), 206(2), 206(4), 15 U.S.C. §§ 80b-6(1), (2), (4); see also SEC Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Release No. IA-5248 (June 5, 2019) (confirming non-waivable nature of adviser fiduciary duty under Section 206).
8 Form PF; Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers; Requirements for Large Private Equity Fund Adviser Reporting, Release No. IA-6297, 88 Fed. Reg. 38146 (June 12, 2023) (adopting new Section 6 for private equity event reporting, including adviser-led secondary transactions, with reports due within 60 days after fiscal quarter-end).
9 SEC and CFTC, Form PF; Reporting Requirements for All Filers, Release No. IA-6959, File No. S7-2026-13, 91 Fed. Reg. 22232 (Apr. 24, 2026) (joint proposal to amend Form PF; SEC proposal to eliminate Section 6 private equity event reporting in its entirety).
10 Delaware law is often central in private fund limited partnership disputes because many fund vehicles are organized as Delaware limited partnerships, but Delaware’s Revised Uniform Limited Partnership Act is highly contractarian: a partnership agreement may expand, restrict, or eliminate fiduciary duties, subject to the nonwaivable implied covenant of good faith and fair dealing. See 6 Del. C. § 17-1101(d). New York law and New York forums may be relevant where selected by the governing documents or transaction agreements.
11 ILPA, Continuation Funds: Considerations for Limited Partners and General Partners (2023).
12 ILPA, Continuation Fund Disclosure Template (Jan. 27, 2026).
13 ILPA and Coller Capital, Illustrative Responses to ILPA Continuation Fund Disclosure Template (May 2026).
14 ILPA, Proposed Updated Continuation Vehicle Guidance (June 24, 2026). Comment period closes August 5, 2026.
15 Verified Complaint for Preliminary Injunction in Aid of Arbitration, C.A. No. 2025-1389-NAC (Del. Ch. filed Dec. 3, 2025).
16 Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11 (1979) (recognizing no private damages action under Section 206, but recognizing limited contract-voiding relief under Section 215).
17 Delaware RULPA § 17-1101(d), (f), 6 Del. C. § 17-1101(d), (f) (providing that fiduciary duties may be expanded, restricted, or eliminated by partnership agreement, subject to the nonwaivable implied covenant of good faith and fair dealing, and permitting limitation or elimination of liability subject to the statutory bad-faith implied-covenant carveout).
18 Lazard, 2025 Secondary Market Report (2026); Jefferies Global Secondary Market Review (Jan. 2026) (both reporting on the CD&R/Belron continuation vehicle as a landmark single-asset transaction).
19 Accel-KKR Press Release, Accel-KKR Closes $1.9 Billion Continuation Fund to Support Further Growth of isolved (Aug. 8, 2025).
20 CAIA Association, The Continuation Vehicle Boom (Feb. 2026) (reporting approximately 80% of continuation vehicles include GP commitments of 5% or more of vehicle size).
21 WTW, The Advantages of Representations and Warranties Insurance for GP-Led Secondaries (May 2025). The 20-30% adoption estimate reflects 2024 data; 2025-2026 figures require independent verification.
