b'ILPA PRIVATE MARKETS EDGE Q2 202110 11Top of MindTOP OF MINDLP INSIGHTS PROGRAM: HOT TOPICS Continuation Funds:ILPAs LP Insights Program is a systematic effort to connect one-on-one with representatives of every ILPAWhat LPs Should Knowmember organization to capture the most pressing issues, challenges and opportunities associated with being an LP.In 2020, ILPA conducted over 200 LP Insights conversations, leveraging those exchanges to generate actionable research for the exclusive use of the ILPA membership.A continuation fund is a GP-led secondary processfundthroughthesecondariesmarket,andexisting wherebytheGPsetsupanewvehicletotakeonLPsaregiventheoptiontoexitandreceivetheir portfolio investments of an existing fund, and one orshare of the proceeds or commit new capital to the more portfolio companies are acquired by the newnewly established fund. Representing amajor part of vehicle. The new fund structure allows a GP to holdthe private equity secondaries market, over 96 billion onto these assets for a longer duration than initiallyUSD of secondary-focused capital was raised through Diversity, Equityplanned.Newcapitalcomesintothecontinuationthese in 2020 1 . ESG and Inclusion Continuation FundsDIFFERENCES AND GP CONSIDERATIONSLikeinGP-ledsecondaries,theGPisresponsibleforUnlikeatraditionalGP-ledsecondariestransaction, structuring the process, soliciting buyers and creating aLPAC approval may not be required for a continuation new investment vehicle. They are also similar with the GPfund process. Because, in a continuation fund, the GP on both sides of the transaction. Perhaps unsurprisingly,sells the asset(s) to another vehicle it controls, similar many of the conflicts associated with GP-led secondariesto a cross-fund transaction, a conflict-of-interest waiver also apply to continuation funds. from the LPAC may or may not be required, pursuant to CommitmentLP Talent Managerthe terms of the LPA. Size andSelection andStill,itisimportanttonotethedifferencesbetween Pacing Evaluation continuation funds and GP-led secondaries:GPs can use the opportunity to capture carry on a well performing asset. By selling to a continuation fund, the IntraditionalGP-ledtransactions,theremainingGP locks in a price for the asset and receives carry from portfolio is rolled into a new vehicle. In continuationthe existing fund. The GP then gets the opportunity to funds,onlyoneorahandfulorportfoliocompaniesreset carry in the continuation fund and potentially earn are moved into a new vehicle. The existing fund andmore if the asset(s) continue to perform. remaining portfolio continues to operate.Members who raised ESG most oftenMemberswhoraiseddiversity,equityand(continued on next page)mentioned:inclusion most often mentioned:Standardized reporting Pipeline of candidatesIntegration into due diligence Emerging managersDeveloping policies Identifying and tracking data UPCOMING OPPORTUNITIES TO WEIGH-INAssessing risk Making progressKey metrics Inclusive processes ILPAsD&IRoadmapincludesbest-practicesandILPA will hold a comment period on our Due DiligenceAlongsidetheDDQupdate,ILPAisworkingwith ILPA has an ESG Roadmap which serves as a directoryQuestionnaire over summer 2021. Many elements ofDiversity in Action Initiative signatories and the ILPA ofhelpfulandpracticalresourcesforLPsseekingtoactivities LPs may consider adopting as members seekthe DDQ have not been updated in full since its initialD&I Advisory Council to update the D&I Team Metrics integrateESGbestpracticesintotheirinvestmentto incorporate DEI into their internal culture, strategiesreleasein2013;allILPAmembersareinvitedandTemplate.BoththeDDQandD&ITeamMetrics strategy and process. and due diligence. LPs may also find practical insightsencouraged to provide input.Template will be released this autumn. on DEI metrics and data capture in ILPAs most recent Diversity in ActionSharing Our Progress report.LPs who are already taking an active role in improving DEI in the industry may consider joining our Diversity in1 https://pitchbook.com/news/articles/continuation-funds-secondaries-Action initiative.gp-buyouts'