ILPA sets new benchmarks for continuation vehicle transactions

Background

In October 2026, the Institutional Limited Partners Association (ILPA) published Continuation Vehicles: Advancing Alignment Through Best Practices (the Guidance).

The Guidance builds on ILPA’s 2023 guidance. It reflects a GP-led secondaries market that has matured significantly since then. Continuation vehicles (CVs) represented roughly 14% of sponsor-backed exits globally in 2025, up from 5% in 2021.

ILPA released two companion tools alongside the Guidance:

1. GP Checklist for Existing LPs in a Continuation Vehicle (the GP Checklist), which covers: 
   • Conflicts management
   • Election options
   • Election materials
   • Pricing
   • GP alignment
2. Continuation Vehicle Core LP Evaluation Questionnaire. LPs use this to prompt dialogue with the GP. It covers: 
   • Underwriting and process
   • Economics and valuation
   • Election terms and LP optionality
   • Alignment and CV governance

The Guidance was shaped by feedback from ILPA members and industry stakeholders during a public comment period.

In this client alert, we will summarise the principal recommendations outlined in the Guidance, consider how the Guidance fits within the broader shift in fund end-of-life management, and outline action points for GPs and LPs.

End-of-life is now a transaction

In our earlier client alert, “End-of-life for PE funds is no longer a wind-down – it is a redesign”, we observed that CVs have moved from occasional workaround to mainstream portfolio tool.

Several pressures have driven this shift:

• Persistent gaps between sponsor price expectations and available exits
• Ageing portfolios and extended hold periods
• LPs actively seeking liquidity and predictability

We also noted that CVs are conflict-heavy by design. The sponsor effectively sits on both sides of the transaction. The Guidance addresses this tension directly. It accepts CVs as an established GP structuring tool. It also places the burden of demonstrating fairness squarely on the GP.

General principles

The Guidance covers each stage of a CV transaction, from the initial response to the impact on the existing fund. We summarise the key recommendations below. At its core, the Guidance is principles-based rather than prescriptive. It recognises that CV transactions are highly fact-specific. 

It sets out the following core principles:

1. Deliberate choice. A CV should be a deliberate structuring decision, not a default.
2. Best outcome for existing LPs. The GP should demonstrate that the CV offers the best outcome for existing LPs compared with other alternatives if considered.
3. Communication with LPs. The GP should fully explain why the CV transaction serves the best interests of existing LPs, despite conflicts inherent in them.

A failure to follow the Guidance in full does not, by itself, signal a flawed process. However, a GP that departs materially from it should be prepared to explain how LPs’ concerns have otherwise been addressed.

Commercial rationale

GPs should articulate a clear and specific rationale for the CV. Appendix B of the Guidance lists factors to address, including:

• Fund lifecycle stage
• Alternatives considered, such as third-party M&A, NAV facilities, strip sales, and tender offers
• Residual portfolio impact
• Execution timing and certainty
• Cost burden relative to expected benefit

The earlier in a fund’s life a CV is proposed, the stronger the rationale should be. Multi-asset CVs (MACVs), which involve the transfer of multiple assets from one or more funds into a new GP-managed vehicle, attract particular attention. They may introduce assets unfamiliar to existing LPs and increase diligence demands.

Conflict management and the LPAC

The Guidance sets out clear principles relating to conflicts. In particular: 

• GPs should disclose each CV-specific conflict completely, accurately, and on a timely basis.
• GPs should avoid blanket waivers and generic conflict disclosures.
• GPs should rely on LPA pre-clearance provisions only where they are CV-specific and LPs reviewed them before investing.
• GPs should seek explicit LPAC approval for each conflict.
• GPs should promptly notify all LPs of the LPAC’s decision.

The Guidance also clarifies the LPAC’s role. The LPAC evaluates the adequacy of the GP’s conflict management. It is not a negotiating party. Responsibility for a fair and transparent process remains solely with the GP.

The Guidance recommends the following LPAC protections:

• At least 10 business days’ prior notice of the conflicts waiver meeting, unless mutually waived
• In-camera time without the GP present
• The option to obtain independent legal advice at the fund’s expense, where proportionate

Information and election period

Information should be symmetrical between existing LPs and incoming CV investors.

Key expectations include:

• Delivery of the ILPA Continuation Fund Disclosure Template, or an equivalent Q&A, before the election period starts
• Unrestricted data room access throughout the election period
• A compact, plain-language summary memorandum, since data room access alone is not sufficient

The election period should generally be at least 20 clear business days from receipt of the final election package. It should be extended for more complex transactions. LPs that do not respond within the election period should be treated as sellers. No LP should be forced to roll without its explicit prior written consent.

Pricing and valuation

The GP should evidence a fair market price. This may be through a competitive auction or other independent third-party price validation.

Where a fairness opinion is obtained, it should:

• Value the totality of the CV’s assets, not only the lead investor’s stake
• Disclose the valuer’s scope, assumptions, and fee arrangements
• Disclose any pre-existing relationships with the GP 

A strong competitive process may, in some cases, avoid the need for a costly fairness opinion.

Representations and warranties insurance is another tool that helps to support a cleaner exit, by reducing buy-side recourse to the existing fund and its LPs and allowing for faster distribution of sale proceeds. However, it is not a substitute for conflicts management, fair pricing, or full disclosure.

Election options and LP optionality

Election options typically include:

• Sell
• Roll without top-up
• Roll with fresh commitment
• A combination of sell and roll 

The GP’s objective should be to maximise LP choice while preserving deal certainty. LPs should not be forced to sell solely because they cannot commit fresh capital. Dilution mechanics should be disclosed and applied consistently.

A CV should deliver a full exit, not a strip sale. If the CV cannot fully fund the purchase price, the GP should explain why the transaction still serves existing LPs.

A “remain in place” option may be appropriate only in limited cases. This allows LPs to either cash out their pro rata interest in an asset from the proceeds of the CV sale or “remain in place” and retain exposure by maintaining their pro rata interest in the existing fund. However, risks involved in such an option include pricing impact, duplicative exit costs, and conflicts between different LP pools in the same fund.

Election agreement

The election agreement should not be used to shift responsibility for the process onto LPs. In particular:

• It should not include broad GP conflict waivers in place of LPAC engagement.
• Waivers of unknown claims are generally not appropriate.
• Any “no reliance” acknowledgement should be clearly justified by the GP.

Rolling LP economics

The Guidance sets clear economic benchmarks for rolling LPs, including:

• No overall increase in management fee liability
• No overall increase in blended, risk-adjusted carried interest cost
• No crystallisation of carried interest for rolling LPs, unless fully explained

GPs should support these outcomes with comparative modelling on a like-for-like basis.

GP alignment

The key test is whether the GP is better off with the CV than without it.

Misalignment can occur when the GP’s economic risk, incentives, or flexibility differs from LPs’, particularly if the transaction allows the GP to de-risk while LPs are asked to increase or maintain exposure.

There is less risk of misalignment if the GP:

• Rolls a significant and meaningful portion of crystallised carry (net of tax) into the CV
• Explains any amount not reinvested
• Provides a “with-CV/without-CV” comparison of the GP’s economics
• Discloses the scale, source, and structure of the sponsor commitment

Funding the sponsor commitment through third-party sources may be viewed as misalignment.

For funds with a European whole-of-fund waterfall, only crystallised carry attributable to the CV assets should be reinvested.

Roll elections should not be conditional on commitments to other GP-managed funds.

Governance, tax, and side letters

Rolling LPs should receive substantially equivalent investor rights, protections, and tax attributes. Material differences should be clearly disclosed. Relevant side letter protections should carry over to the CV. Updates should be limited to those needed for legal, tax, regulatory, or policy reasons.

Co-investors and the existing fund

Co-investors should be engaged early and treated consistently with other LPs.

The GP should also assess the CV’s impact on the existing fund, including:

• Shared transaction costs
• Refinancing of portfolio debt
• The GP’s clawback liability
• The exit plan for remaining assets, to avoid a neglected “stub fund”

Our view

While the Guidance is not binding, we expect it to continue to shape market practice.

First, the companion tools make the standards easy to apply and provide a starting point for GPs and LPs to frame negotiations and dialogues relating to CV transactions. The GP Checklist effectively operates on a “comply or explain” basis.

Second, the Guidance encourages LPs to embed CV protections into side letters and LPAs. Over time, this may convert best practice into contractual obligation.

Third, the Guidance formalises themes we identified earlier this year. These include:

• Treating GP-led processes as full sell-side transactions with a conflicts overlay
• Treating the LP election as a product rather than a formality
• Treating governance as a matter of value protection

The Guidance was developed primarily for closed-end private equity buyout funds. However, it may also influence practice in private credit and infrastructure, where MACVs are more common.

Action points

GPs should consider the following actions:

• Plan early. Begin scenario planning well before years nine and 10 of the fund’s life.
• Review CV policies. Ensure internal conflicts and allocation policies address CV transactions and are available to LPs on request.
• Prepare against the GP Checklist. Use the GP Checklist as a pre-launch readiness review.
• Standardise disclosure. Build election packs around the ILPA Continuation Fund Disclosure Template.
• Model economics. Prepare comparative fee, carry, and “with-CV/without-CV” modelling at the outset.
• Revisit fund documents. Consider CV-specific provisions in new LPAs, as generic pre-clearance language may carry limited weight.

LPs should consider the following actions:

• Set a default approach. Agree internally whether the starting position is to sell, roll, or assess case by case.
• Adapt approval processes. Build an expedited underwriting and approval framework that fits a condensed review window.
• Use the questionnaire. Apply the Continuation Vehicle Core LP Evaluation Questionnaire as a structured diligence framework.
• Strengthen side letters. Seek minimum election periods, minimum disclosure, and mirror tax treatment for future CVs.
• Review election agreements. Do not sign election documents without legal review, even where seeking liquidity.
• Engage through the LPAC. Confirm that LPAC terms of reference allow members to raise queries on exit strategy and CV usage.

Final thoughts

The Guidance confirms that CVs are now a mainstream feature of private equity portfolio management.

It also confirms that legitimacy depends on process. Transparency, defensible pricing, and demonstrable alignment are now baseline expectations.

The sponsors and investors best placed to benefit will be those that approach CV transactions early, transparently, and commercially.

For more information on the Guidance and its implications for your funds or portfolio, please reach out to your usual Reed Smith contact.

Client Alert 2026-204