Continuation funds began as a novel method for holding onto an asset and maximize the value from assets within the portfolio. These deals have become a popular option for General Partners (GPs) and Limited Partners (LPs) alike to maximize returns. However, there is a lack of industry consensus regarding what constitutes a well-run continuation funds process.
For LPs, the decision to participate in continuation funds demands attention to details that are commonly difficult to evaluate within the timeframes provided; this challenge is compounded as the number of deals to be evaluated increases. Additionally, the structure of these deals are bespoke and vary from manager to manager, increasing the challenge of consistently evaluating the impact of an election to roll or sell one’s stake in a continuation fund. These transactions are also inherently conflicted, with GPs sitting on both sides of the transaction. All these features, combined with the lack of language generally included within Limited Partner Agreements (LPAs), create a difficult landscape for LPs to navigate.
ILPA's Continuation Fund Guidance
As continuation fund transactions increase in prevalence, greater transparency and consistency in these deals will be critical to their efficiency and quality of execution. ILPA's continuation fund guidance, developed alongside LPs, GPs and industry experts, provides parameters for a well-run transaction. It calls for GPs to pursue processes and deal structures that maximize alignment and LP engagement. When LPs are better able to anticipate how to successfully engage in the process and request adequate disclosures, they can transact in a manner that serves the best interest of their beneficiaries and the broader industry.
Given the highly unique nature of these transactions and broad range in scope of deals, the guidance may not be universally appropriate or applicable to every circumstance. Rather, it is intended to provide general parameters for well-run processes that will encourage productive dialogue and foster more informed decision-making by LPs.
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This guidance provides parameters for a well-run transaction, promoting greater alignment and transparency so that LPs can make more-informed decisions throughout the process resulting in better outcomes for all.