analyzing-continuation-fund-structures

# Analyzing Continuation Fund Structures

## When To Use

- Evaluating a GP-led secondary transaction where portfolio assets roll into a new continuation vehicle (CV)
- Assessing LP election options (rollover, cash-out, partial liquidity) in a tender offer or stapled secondary
- Reviewing pricing methodology and fairness of the transfer valuation for existing LPs
- Analyzing new investor terms, economics, and structural protections in the CV
- Comparing continuation fund structures across multiple GP-led processes or benchmarking against market norms

## Inputs To Gather

- **Transaction documents**: Term sheet, LP election notice, fairness opinion (if any), side letters
- **Fund economics**: Existing fund LPA terms (carry, hurdle, fee structure) vs. proposed CV terms
- **Valuation materials**: Third-party valuation report, comparable transaction data, GP's internal model and assumptions
- **Portfolio company data**: Financial statements, operating metrics, projected hold period, and exit assumptions for assets rolling into the CV
- **LP base composition**: Breakdown of existing LPs by type, commitment size, and likely election preference
- **New capital terms**: Lead secondary buyer economics, stapled primary commitment (if any), co-invest rights, and fee/carry reset provisions
- **Conflicts disclosures**: GP conflict-of-interest disclosures, LPAC approval status, and independent advisor engagement

## Workflow

1. **Map the transaction structure**
   - Identify whether the CV is single-asset, multi-asset, or strip/sleeve
   - Diagram the LP election options: full rollover, full cash-out, partial mix, status quo (if available)
   - Note any stapled commitment requirements for new or rolling LPs
   - Flag whether the GP is crystallizing carry on the transfer and resetting economics in the CV

2. **Analyze pricing and valuation**
   - Review the GP's proposed transfer price against the most recent NAV and any third-party valuation
   - Assess valuation methodology (DCF, comparable transactions, public comps) and key assumptions (discount rate, exit multiple, growth rate, hold period)
   - Compare implied pricing to recent GP-led secondary market benchmarks (typical discounts/premiums to NAV)
   - Identify whether a fairness opinion was obtained and by whom; evaluate independence of the advisor
   - [VERIFY] Confirm whether ILPA or jurisdiction-specific guidance on fairness opinions applies

3. **Evaluate LP election mechanics**
   - Review election timeline, default election treatment, and minimum/maximum thresholds for the transaction to close
   - Assess whether cash-out pricing is at the same valuation as rollover or at a discount
   - Identify any differential treatment between large and small LPs or between rolling and cashing-out LPs
   - Check for drag-along, tag-along, or most-favored-nation provisions affecting elections

4. **Assess CV fund terms and economics**
   - Compare management fee (rate, base, step-downs) against the predecessor fund and market norms
   - Analyze carried interest structure: rate, hurdle/preferred return, catch-up, whole-fund vs. deal-by-deal
   - Review GP commitment to the CV (percentage and whether funded in cash or via carry rollover)
   - Evaluate fund life, extension provisions, key-person triggers, and removal/no-fault divorce rights
   - Identify governance provisions: LPAC composition, consent rights, reporting obligations

5. **Review new investor terms**
   - Assess lead secondary buyer's economics: any fee discount, co-invest rights, board seats, or enhanced governance
   - Identify side letter provisions that may create two-tier LP classes within the CV
   - Review whether new investors receive different liquidity or exit rights vs. rolling LPs

6. **Assess conflicts and process integrity**
   - Evaluate the GP's conflict management: Was an independent LPAC involved? Was a third-party advisor retained?
   - Review disclosure adequacy regarding GP's economic incentives (carry crystallization, fee reset, NAV inflation risk)
   - [VERIFY] Check compliance with SEC guidance on GP-led secondaries and any applicable fiduciary standards

## Output

Produce a structured analysis report containing:

- **Executive summary**: Transaction type, key terms, and overall assessment
- **Structure diagram**: Visual or tabular representation of the CV structure, LP options, and capital flows
- **Valuation assessment**: Transfer price analysis with comparison to NAV, third-party valuation, and market benchmarks
- **LP election analysis**: Summary of options, timeline, default treatment, and any differential economics
- **Terms comparison table**: Side-by-side of predecessor fund vs. CV terms (fees, carry, governance, fund life)
- **Conflicts and process review**: Assessment of GP conflict management and fairness process
- **Key risks and considerations**: Material issues, red flags, or areas requiring further diligence
- **[VERIFY] items**: Consolidated list of jurisdiction- or regulation-dependent points requiring confirmation

## Quality Checks

- Transfer price is benchmarked against at least two independent reference points (NAV, third-party valuation, market comps)
- All LP election options are described with clear economic consequences for each path
- CV terms are compared line-by-line against the predecessor fund LPA — no material term is omitted
- GP conflicts are explicitly identified, not just acknowledged generically
- Carry crystallization economics are quantified or flagged for quantification
- Any assumptions about hold period, exit multiple, or growth rate are labeled and sourced
- [VERIFY] markers are placed on all jurisdiction-specific regulatory requirements (SEC, FCA, MAS, etc.)
- Report does not present GP-provided projections as independent conclusions