Conflicts of Interest, Fairness Opinions, and ILPA Guidance

Introduction

The document most often cited as protecting investors in a continuation vehicle (CV) is usually addressed to someone else. A fairness opinion on a CV is typically written for the general partner (GP), the party whose conflict it exists to check, and limited partners (LPs) who ask to see it generally receive it on an informational, non-reliance basis. Houlihan Lokey, which says it rendered more fairness opinions than any other provider in the two decades to 2021, set out those conventions in its April 2022 comment letter to the Securities and Exchange Commission (SEC). None of this makes the opinion worthless. It makes it one tool among several, each drawn from a different source of authority: law, the fund's contract, or recommended best practice from the Institutional Limited Partners Association (ILPA). Knowing which layer a protection comes from tells a private capital advisory (PCA) banker what it can enforce, whom it protects, and what it leaves uncovered. That starts with a map of who is conflicted and how.

Most descriptions of CV conflicts start and stop with the GP. A more useful conflict map asks one question of every party in the transaction: which direction of price does it prefer, and what does it gain apart from the price? The overview of GP-led secondaries introduces the conflict and the blog's primer on continuation vehicles the structure; the table below sets every party against the price.

The GP on Both Sides of the Price

The first two rows belong to one firm. As manager of the selling fund, the GP gains from a high price, which crystallizes more carry and flatters the old fund's record; as manager of the buying vehicle, it gains from a low one, which makes the CV's return targets and carry tiers easier to reach. The fee base of the new vehicle moves with the price too, the point behind the warning that a higher price pays the GP twice in CV economics. Which pull dominates depends on the waterfall and how much carry the GP rolls, so the direction of the GP conflict is a fact to establish in each deal, not something to assume. Repetition sharpens it. ILPA's June 2026 draft says several CVs out of one portfolio may heighten concern that resetting fees and carry is overriding existing LPs' interests, and asks for stronger evidence of alignment each time a GP returns to the structure.

Sellers, Rollers, and Committee Members

The less discussed conflicts sit among the LPs. Selling LPs want the highest price; rolling LPs want a low entry price for their new exposure but own the same assets the sellers are selling, so a price that shortchanges sellers is a transfer between investors who were partners the day before. ILPA's June 2026 draft adds the conflict inside the committee: a member of the limited partner advisory committee (LPAC) whose affiliated secondaries business bids for the assets has a motive to seek a bargain, and the draft asks the GP to tell other members and says recusal should be considered.

The Hired Help

Every adviser in the process is paid by, or chosen by, the conflicted party. The GP's financial advisor earns most of its fee at closing and depends on repeat mandates from the same sponsors and buyers, pressures set out in the advisor's role in a GP-led. The draft also notes that election agreements increasingly include a fund counsel waiver, in which LPs acknowledge that the law firm acts only for the GP, and says such advice should not then be a fund expense. The fairness opinion provider is engaged by the GP as well.

The protections around that map come from three sources with very different binding force. Law applies whether or not anyone negotiated for it. Contract applies because the fund's documents say so. Best practice applies only when parties adopt it.

Law: Fiduciary Duty, Delaware, and the FCA

In the United States, the legal layer is the fund manager's federal fiduciary duty as an investment adviser under the Investment Advisers Act of 1940. The SEC's June 2019 interpretation of the adviser's standard of conduct says that duty follows the agreed scope of the relationship but may not be waived, and that a blanket waiver of all conflicts is inconsistent with the Act. An adviser must eliminate conflicts or at least expose them through full and fair disclosure that allows informed consent; where a conflict cannot be disclosed well enough for that, it should be eliminated or mitigated. Disclosure and consent stop the conflict itself from breaching the duty, but, the SEC adds, they do not satisfy the adviser's separate duty to act in the client's best interest.

Investment Adviser Fiduciary Duty

The duty of care and duty of loyalty an investment adviser owes its clients under the Investment Advisers Act of 1940. It can be shaped by the scope of the advisory relationship but not waived, and it requires conflicts to be eliminated or disclosed fully and fairly enough for the client to give informed consent.

Two features limit how far this reaches in a CV:

The rule's history is told in the SEC rules and their vacatur. What survives is a general duty, and ILPA's 2026 draft closes by reminding GPs of the fiduciary duty they owe the existing fund and its LPs.

State partnership law adds less than candidates expect. Many US funds are formed as Delaware limited partnerships, and section 17-1101 of the Delaware Revised Uniform Limited Partnership Act gives "maximum effect" to freedom of contract: a partner's duties may be expanded, restricted, or eliminated by the partnership agreement, but the implied covenant of good faith and fair dealing cannot be. An LPA that narrows the GP's state-law duties therefore shifts weight onto the federal duty and onto the fund's own consent mechanics. In the UK, managers authorized by the Financial Conduct Authority (FCA) must manage conflicts fairly under its Principles and conflicts rules. The FCA locates the CV problem precisely: conflicts in valuation are often present where assets are transferred and the manager's valuation sets a transfer price that affects buyers, sellers, and remaining investors. Its valuation review, discussed below, tested how firms handle that on CV transfers.

Contract: The LPA and LPAC Consent

The contract layer is the limited partnership agreement (LPA): its affiliated-transaction clause, the consents it requires, and the amendment thresholds a deal may trigger, all mapped in the LPA article. The central contractual tool is LPAC consent, the committee's waiver of the GP's conflict, whose composition, meeting steps, and limits are covered in LPACs, conflicts of interest, and ILPA principles, including the Energy & Minerals Group (EMG) dispute over how that consent was sought. Side letters add investor-specific terms. Contract is only as strong as its drafting, and many LPAs were signed before CVs became common.

Best Practice: ILPA's Guidance From 2019 to the 2026 Draft

The third layer is ILPA guidance: April 2019 guidance on GP-led fund restructurings, May 2023 continuation fund guidance, and a replacement ILPA published as a draft in June 2026, whose comment period closed on August 5, 2026. ILPA recommends; it cannot require. Its guidance binds a GP only when written into an LPA, a side letter, or the GP's own policy, and the draft encourages exactly that, suggesting GPs adopt a CV policy shared with LPs at fundraising. The draft also pushes beyond the contract layer, saying GPs should seek LPAC approval for all CV conflicts even where the LPA pre-clears them.

Placing each protection in its layer shows what it can do. The continuation vehicle process sets out who decides what and when; this table asks where each tool gets its authority, whom it serves, and where it runs out.

Read down the second column and the pattern is plain: law supplies a backstop enforced after the event, while the tools that shape the price before signing come from contract and recommended practice. Layers can also shift. The CFA Institute's September 2025 report on continuation funds notes that some fund agreements require a fairness or valuation opinion, which turns a best-practice tool into a contractual condition, and that LPACs may ask for one. The three protections usually described together, committee review, LPA approvals, and elections, all sit in the contract layer, so their strength depends on documents drafted years before the deal, which is why the regulatory and best-practice tools around them matter.

The fairness opinion is the tool most often misdescribed, so its exact wording and agreed scope repay close reading.

The Opinion and Its Addressee

A customary opinion says that the consideration to be received is fair, from a financial point of view, to a specified party. In a CV that party is usually the selling fund, and Houlihan Lokey's 2022 letter explains that the opinion typically addresses the aggregate consideration as if no LP rolled, that is, as if the fund sold the assets for cash.

Fairness Opinion

A letter from an independent financial advisor stating that the consideration in a transaction is fair, from a financial point of view, to a specified party. In a continuation vehicle it is usually addressed to the general partner and covers the price paid to the selling fund, not the transaction's other terms or any investor's decision.

The list of what an opinion excludes is longer than the list of what it covers. It does not address other terms of the deal, the CV's fees and carry, the merits of the transaction against alternatives, or any investor's decision to sell or roll. Only the addressee may rely on it, and engagement letters usually allow disclosure to LPs only if they acknowledge it is for information. The work sits on information from the GP, including projections the provider generally does not verify independently, tested with methods such as comparables, precedent transactions, and discounted cash flow analysis, and it is often approved by an internal fairness committee, a process described in how bankers opine on a deal.

Fairness Opinion vs Valuation Opinion

A valuation opinion gives a view on the value of the assets, usually a range; a fairness opinion judges the negotiated price against that kind of analysis. Houlihan Lokey told the SEC that the two rest on substantially similar analyses and that a valuation opinion typically costs less; the vacated 2023 rule, in its final form, would have accepted either. The difference matters most when the price comes from a single buyer: a range confirms the number is plausible, while a fairness opinion puts the provider's name on the specific price.

Who Provides Them and How Independent They Are

Opinions come from specialist practices at advisory and valuation firms. Houlihan Lokey describes its Fund Opinions team as the market leader in CV and other fund-affiliate opinions, and its own 2025 continuation fund study calls an independent fairness or valuation opinion a widely adopted best practice. Independence is relative: the provider is chosen and paid by the GP. ILPA's 2019 and 2023 guidance let LPs as a group ask for an opinion from a provider independent of the GP's advisor, and the 2026 draft asks GPs to share the valuer's engagement terms and any fee incentives, give LPs the full report, and allow time to question the valuer.

From Optional Extra to Standard Deliverable

The opinion's standing has moved quickly. ILPA's 2019 guidance said one "may be helpful". The SEC's 2023 rule would have made a fairness or valuation opinion mandatory for registered advisers before its 2024 vacatur. In its March 2025 multi-firm review of private market valuation practices, the FCA found that the firms it examined in depth with continuation funds sought LPAC agreement to asset transfers and always obtained an independent fairness opinion on the transfer price, which incoming investors' bids set. Yet ILPA's 2026 draft, while calling the opinion a market-accepted standard, warns that on its own it may provide only limited reassurance, and asks GPs to support it with comparable valuations, models, and projections.

The draft's list of what LPs should test when setting a valuation against the price doubles as a map of where an opinion can mislead:

An opinion can be sound on its own terms and still leave most of these questions open, because its scope is agreed with the GP, the party it is meant to check.

Two remaining tools work through information rather than consent: investor disclosure, meaning what LPs are told, and regulatory examination, meaning what examiners later check.

The Continuation Fund Disclosure Template

In January 2026 ILPA released its Continuation Fund Disclosure Template, a standardized summary of what LPs need to begin a roll-or-sell evaluation, organized around asset information, the transaction process, the CV's return profile, and its terms. ILPA says it is not a substitute for definitive transaction materials or GP and advisor documents. The June 2026 draft would make it the spine of CV disclosure, with a first version at the initial LPAC discussions and a completed one with the election materials. Disclosure is the practical form of the SEC's informed consent test, and like consent it cannot turn a poor price into a fair one.

Disclosure also reaches the LPs the committee does not. The draft notes that LPs outside the LPAC understand a CV mainly through investor communications and the election pack, asks that existing LPs get the same data room as the lead and syndicate, and observes that the quality of an LP's experience of the process increasingly shapes whether it reinvests with the GP. That last point is a protection no document creates: a GP that runs a poor process may pay for it at its next fundraise.

SEC and FCA Scrutiny

Regulators treat these deals as a supervision question even without a dedicated rule. The SEC's examination priorities for fiscal year 2025, published in October 2024, listed adviser-led secondary transactions among the practices examiners would review for conflicts, controls, and risks at private fund advisers. The fiscal 2026 priorities, released in November 2025, framed that work around fiduciary duty and conflicts more generally without naming these transactions. In the UK, the FCA's February 2025 letter to asset managers named continuation funds among the settings where conflicts may increase and announced a separate multi-firm review of conflicts at private-markets firms.

Put the layers together and one seat stands out. The competitive process, the fairness opinion, and the FCA's observed practice all test the price paid to the selling fund. The rolling LP takes a new position whose fees, carry tiers, and follow-on terms no opinion addresses, and its protection is a status quo option, disclosure it can act on, and time to decide, covered in LP elections and status quo terms. A banker who can show a committee where the evidence for the sellers ends and the evidence for the rollers begins understands CV conflicts better than one who lists every protection.