Sponsor led continuation vehicles and the LPAC conflict mechanic
GP led secondaries have grown from a corner of the market to a central exit channel for PE. The LPAC conflict process is the part that deserves more careful drafting than most managers give it.
The sponsor led continuation vehicle (CV) has gone from an unusual exit structure to an established part of the PE playbook. By most broker reports, GP led secondaries now represent a meaningful fraction of total secondary market volume each year, with single asset and multi asset continuation transactions both growing. The Institutional Limited Partners Association has updated its guidance on GP led transactions multiple times, most recently with detailed best practices on conflict management.
The structure is straightforward in concept. The fund's GP creates a new vehicle, the continuation fund, that buys one or more portfolio companies out of the existing fund. Existing LPs can choose to roll their interest into the new vehicle or take liquidity at the transaction price. New investors (typically secondary funds) provide the bulk of the capital for the new vehicle.
The mechanic that deserves more attention than most LPAs give it is the limited partner advisory committee process for approving the transaction.
Why the LPAC matters more in a CV
In an ordinary fund operation, the LPAC handles conflict situations that are rare and well understood. Co investment allocations among LPs, key person matters, certain affiliated transactions. The LPAC reviews the conflict and approves or does not.
In a GP led continuation, the LPAC is reviewing a transaction in which the GP is on both sides. The selling fund is the GP's fund. The buying continuation fund is the GP's continuation fund. The transaction price affects what existing LPs receive on their roll-or-sell decision. The GP's economics carry over to the continuation fund, often with reset terms. The conflict is structural and central, not occasional.
That conflict requires a more robust review than a standard LPAC sign off. ILPA's guidance has been explicit on this, and the established practice in the market reflects it. A well run CV process includes a fairness opinion from an independent advisor, a structured information package to the LPAC, a defined window for review, an independent secondary advisor representing the LPs interests in pricing negotiations, and clear documentation of the LPAC's findings.
The LPAs that handle this well bake the process into the fund documents at formation, not at the time of the first CV transaction. Trying to negotiate the right process when the deal is on the table is harder and produces worse outcomes for everyone.
Where deals go wrong
Three failure modes show up most often in CV transactions that produce litigation or LP unhappiness.
The first is rushed timeline. LPs receive the package on Monday, are asked to decide by Friday, and have no meaningful chance to evaluate either the rollover terms or the alternative liquidity. The shortest defensible review window is a matter of debate but the cleanest practice is to give LPs at least four to six weeks for substantive evaluation.
The second is opacity on price formation. The LPs are told that the price is supported by a fairness opinion but the underlying valuation methodology, the comparables used, and the assumptions baked into the projections are not shared in usable detail. A fairness opinion conclusion without the underlying analysis is a check the box exercise, not informed consent.
The third is GP economics that change in ways that are not transparent. The continuation fund has its own carry waterfall, often with different hurdle rates, catch up provisions, and crystallization mechanics than the original fund. If the LP is rolling into a structure where the GP's economics improve, the LP needs to see that explicitly to make an informed decision.
What corporate and fund counsel should do
For LPACs reviewing a CV, the practical work is a short list. Confirm the fairness opinion is from an independent advisor with relevant experience. Confirm the LP information package includes the underlying valuation analysis, not just the conclusion. Confirm the review window is long enough for substantive LP advisory committee work. Confirm the GP's economics are disclosed clearly, including any changes between the original fund and the continuation vehicle.
For LPs deciding between roll and sell, the practical question is not just about the absolute price. It is about whether the continuation vehicle structure (the hold period, the deal pipeline, the GP economics, the secondary advisor's role) matches the LP's portfolio strategy.
For GPs running a CV process, the cleanest path is to over invest in the LPAC review. The cost of running a thorough process is meaningfully less than the cost of an LP-driven challenge to a price or a structure after the fact. The continuation vehicle market has matured. The legal risk environment has matured with it.
The CV is a real exit channel for portfolio companies that need more time than the original fund has left to give them. Used well, it gives the GP, the company, and the LPs who roll a structured path to additional value. Used badly, it concentrates conflicts that the fund formation documents were never designed to handle. The mechanic between those two outcomes is the LPAC process, and that process is where the careful drafting happens.
Walter Allison is a corporate attorney in Denver. He writes here about M&A, private equity, and venture capital structure.
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