The Continuation Fund Mechanism
In a typical continuation transaction, the general partner (GP) proposes transferring one or more assets from a selling fund into a continuation vehicle, allowing existing limited partners (LPs) to choose whether to cash out, roll, or blend both options. This dual role—acting as both seller and buyer—inevitably introduces conflicts, which must be proactively managed through robust processes, clear documentation, and independent oversight.
From our perspective, we observe that seamless fund administration, depositary oversight, transfer agency, corporate secretarial, valuation governance, and transparent reporting form the backbone of any successful GP-led continuation transaction. Proper investor services provide the neutral structure that certifies net asset value (NAV) quality, evidences valuation independence, operates election mechanics, and maintains transparent, standards- aligned reporting. In our experience, these aspects convert perceived conflicts into demonstrable fairness, especially when valuations are already under scrutiny.
Governance Architecture and Conflict Management
Governance architecture is central to credibility. Early Limited Partner Advisory Committee (LPAC) engagement and clear conflict-management protocols are essential. The Institutional Limited Partners Association (ILPA) recommends addressing conflicts, managing recusals, and reviewing disclosure packages and process fairness. Practically, this means early briefings, disclosure of alternatives considered, and a documented rationale focused on maximizing value for all LPs, not solely for those electing liquidity.
Independent fairness or valuation opinions now form a best-practice standard. Even though the U.S. SEC's 2023 private-fund adviser reforms were vacated in June 2024, the regulatory signal is clear: adviser-led secondaries require independent price checks and transparent relationships with opinion providers. Many sponsors circulate such opinions with the election pack, alongside relationship disclosures—a good-governance habit that investors should deem as standard practice.
Valuation Governance Frameworks
Valuation governance becomes especially critical when dealing with assets subject to uneven price discovery—such as office buildings or niche retail properties. The updated INREV Property Valuation module (effective January 2024) provides a comprehensive framework for roles, responsibilities, and transparency that complements the INREV NAV and Reporting modules. Aligning policies to these standards ensures consistency in presenting economic NAV and reconciling it from IFRS, while also incorporating sustainability factors that can materially influence value.
At the asset level, valuations should comply with RICS Valuation – Global Standards (Red Book) and IVS 2025, emphasizing data quality, documentation, model governance, and ESG.
Operational Design and Execution
Operational design must reflect this complexity. Dedicated project tracking for rolled interests, new secondary capital, and any stapled commitments is essential. Equalisation rules must mirror the fund constitutional and governance documents, capturing fee holidays or preferred-return resets and preventing performance cross-contamination between legacy and continuation cohorts.
Investors should be mindful of model carry resets, accrual releases, and fee waivers for rolling investors, with full alignment to ILPA guidance on transaction-cost allocation between selling fund, continuation vehicle, and exiting investors.
Execution Playbook
A disciplined execution playbook transforms complex continuation processes into predictable operations. Early in the project, both the GP and fund administrator analyse the strategic options and define valuation scope, appraisal terms and candidate opinion providers.
During the go/no-go phase, investor services teams coordinate preparation of investor packages, including historical performance data, proposed price-setting methodology, conflict disclosures, fee and waterfall redlines, structural diagrams, and updated INREV reporting bridges.
Following LPAC review and LP’s consultation, at closing, asset transfers are executed, consideration settled, accounting journals posted, Annex IV reports updated, and the first continuation-vehicle reporting pack issued. Lessons learned are recorded in the governance log, converting a one-off transaction into a repeatable capability.
Common Pitfalls and Risk Mitigation
Common pitfalls—inconsistent valuation perimeters, unclear treatment of fees and expenses, weak election controls, and oversight delays—can undermine pricing integrity. Reconciling asset scopes early, coding fee allocations into the administration engine, enforcing two-person verification, and mapping depositary responsibilities mitigate these risks. In a valuation gap environment, process reliability is synonymous with value protection.
Ultimately, a well-run continuation fund enables every investor—whether rolling or exiting—to trace how pricing was determined, how conflicts were identified, addressed and managed, and how economic NAV reconciles across accounting and industry frameworks. ILPA-aligned transparency, RICS/IVS-compliant valuations, and INREV-consistent reporting, delivered through disciplined operations, build investor confidence that fairness has prevailed, even amid valuation uncertainty.
Opinion column by Felipe Vargas Domínguez, Associate in Investment Management at Arendt & Medernach, and Rodrigo Delcourt, Partner in Investment Management at Arendt & Medernach.
