Introduction
A continuation vehicle's headline price is paid in three different currencies. Part of it is cash that leaves the deal for the limited partners (LPs) who sell. Part is rolled value, the interests of LPs who stay, which never touches a bank account. And part may be crystallized carry, the general partner's (GP's) share of the gain on the sale, which the Institutional Limited Partners Association (ILPA) expects to go straight back into the new vehicle. An $800 million continuation vehicle (CV) can therefore need well under $600 million of new money to pay its sellers. Separating those currencies is the first step whenever a private capital advisory (PCA) banker discusses CV economics: who funds the purchase, who receives cash, how the GP's old carry is treated, what the new vehicle charges, and what happens when the companies need more capital. The examples below are illustrative and deliberately small.
Sources and Uses: Who Funds a CV and Who Receives Cash
Every CV balances the two lists of a sources and uses table in an acquisition. The difference is that some sources in a CV are not cash, and some recipients of the price never receive a payment.
Where the Purchase Price Goes
Take an illustrative single-asset deal. Fund V bought a company for $300 million, and the lead investor's process values the fund's stake at $800 million. The fund uses a deal-by-deal waterfall and is past its hurdle and catch-up, so the $500 million gain produces $100 million of carry for the GP at 20%. That leaves $700 million for the LPs, and 85% of them by value elect to sell, close to the roughly 15% roll rate that market participants reported to Houlihan Lokey for 2025. Assuming carry crystallizes on the whole transfer, the price divides as follows:
| Holder in the legacy fund | Share of the price | Cash at closing | Stays in the CV |
|---|---|---|---|
| Selling LPs (85% of LP value) | $595m | $595m | $0 |
| Rolling LPs (15% of LP value) | $105m | $0 | $105m |
| GP carry on the sale | $100m | $0 | $100m |
| Total | $800m | $595m | $205m |
Only the first row is cash. Selling LPs receive $595 million, and the other $205 million of the price stays inside the new vehicle as rolled interests and rolled carry.
Status quo terms change the split, not the total. Under ILPA's status quo definition, set out in LP elections and status quo terms, no carry is crystallized on rolling LPs' interests. The rollers then carry their gross share of $120 million into the CV, with the $15 million of carry attributable to it still governed by the old fund's terms, and the GP crystallizes only the $85 million earned on the sellers' share. Sellers still receive $595 million.
Who Funds the Vehicle
The CV's own sources and uses add two items the price leaves out: a follow-on reserve of committed capital for the company's future needs, and the formation and transaction costs of setting up the vehicle and completing the transfer.
| Uses | Amount | Sources | Amount |
|---|---|---|---|
| Purchase price | $800m | New investors (lead and syndicate) | $703m |
| Follow-on reserve (committed, undrawn) | $120m | Rolled LP interests | $105m |
| Formation and transaction costs | $8m | GP rolled carry | $100m |
| GP fresh cash | $20m | ||
| Total | $928m | Total | $928m |
New investors, the lead investor and its syndicate, supply $703 million, most of it to pay sellers. The GP's $120 million is about 13% of commitments, made up of carry it could have taken in cash plus a fresh check. The reserve is shown at vehicle level for simplicity; in practice investors commit to it pro rata and it is drawn only when needed.
Carry Crystallization in the Legacy Fund
For the old fund, a sale to the CV is a sale like any other, so the price runs through the existing distribution waterfall and may trigger carry. Whether it does decides what the GP can reinvest and what sellers actually receive.
- Carry Crystallization
The point at which a general partner's carried interest on an investment becomes fixed and payable because the investment is treated as realized, for example when a fund sells a company to a continuation vehicle. Crystallized carry can be paid out in cash or reinvested, and whether any crystallizes depends on the old fund's waterfall and the negotiated deal terms.
Deal-by-Deal vs Whole-of-Fund: When Carry Crystallizes
Under a deal-by-deal waterfall, selling one company realizes that deal, and carry becomes payable on the transfer price once the deal's own tiers, plus any losses the partnership agreement makes it cover, are satisfied. That is the Fund V case. Under a whole-of-fund waterfall, proceeds first repay the whole fund's contributions and preferred return, so a fund not yet in carry crystallizes nothing, however good the price. ILPA's 2023 continuation fund guidance accepts that outcome and says buyers and rolling LPs must then take comfort from the GP's commitment to the new vehicle. Price zones inside a catch-up are worked through in the waterfall article, and where each structure prevails in European vs American waterfalls.
The regional difference shows up in the deal numbers. Jefferies' review of the first half of 2026 notes that carry in the selling fund is often not crystallized in European transactions, which contributes to lower headline GP commitments: about 5% of total commitments in Europe against about 10% in North America. Rerun Fund V under a whole-of-fund waterfall that has not reached carry, and three things change:
- Sellers receive their full 85% of $800 million, or $680 million, so new investors must fund $85 million more cash.
- The GP has no carry to roll, so any commitment is fresh money, which European sponsors, Jefferies observes, are more likely to put up out of pocket, often with the help of financing.
- The old carry is not lost; it remains a claim on the legacy fund's later distributions if the fund ever clears its hurdle.
Crystallizing on Rolling LPs' Interests
The contested question is whose interests the carry is crystallized on. On the selling LPs' share, the sale is real: those investors leave with cash, so carry on their gain is the ordinary consequence of an exit. On the rolling LPs' share, nothing has been realized; the same exposure has simply moved vehicles. The CFA Institute's July 2026 report on conflicts in continuation funds calls crystallization on the sellers' portion unobjectionable but generally opposes it on the rollers' portion, which pays the GP a performance fee merely for moving interests between funds; ILPA's status quo terms exclude it. Rollers who suffer it enter the CV with $105 million instead of $120 million in Fund V, and face new carry on top.
Cash Out or Roll: What Happens to Crystallized Carry
Once carry crystallizes, the GP can take it in cash or reinvest it. ILPA's 2023 guidance says that in almost all cases the GP should roll 100% of it, and explain any exception, citing the retirement of deal team professionals as an example. Its June 2026 draft guidance, which closed for comment on August 5, 2026, goes further: all crystallized carry and all returns on the GP's sponsor commitment in the old fund should be reinvested, and a GP taking any cash should explain why. Practice sits close to that standard. William Blair's 2026 secondary market report describes a 100% rollover of sponsor economics as the market-standard expectation, and in 2025 the GP took no liquidity at all in 83% of the continuation funds it tracked.
- Equitized Carry (Carry Rollover)
Crystallized carried interest that a general partner reinvests in a continuation vehicle instead of taking in cash, receiving an equity interest in the new vehicle in return. The rolled carry then rises or falls with the transferred assets alongside the new investors' capital.
Rolling the carry changes its risk, not its size. In Fund V the $100 million is the GP's either way; rolled, it becomes $100 million of exposure to the same company the new investors are buying, at the same price, and it shrinks if the company disappoints.
The GP Commitment: Rolled Carry, Fresh Cash, and Why Buyers Want It Large
Buyers read the GP commitment as the main evidence that the manager believes the price. The GP sits on both sides of the transfer, so a buyer's most direct protection is making it a large investor at the same entry price. How buyers weigh this against leverage and company risk is covered in how buyers assess a continuation vehicle.
What the Commitment Is Made Of
A GP commitment in a CV can combine four sources, and they are not equally convincing:
- Rolled crystallized carry: money the GP has earned but not received, now at risk again.
- Rolled sponsor commitment returns: the GP's share, as an investor, of the sale proceeds on its original commitment to the legacy fund.
- Fresh cash: new money from the firm or its professionals on top of the rollover.
- Flagship fund participation: an investment in the CV by the GP's latest main fund.
The last is another fund's LPs' capital, so it signals conviction without putting the manager's own money at risk. William Blair found the GP investing additional capital on top of its rollover in about 46% of 2025 continuation funds, and cross-fund investments from the latest flagship fund in 37%, up from 23% in 2024.
How Large GP Commitments Run
Evidence on size points to commitments well above what GPs put into their primary funds. Jefferies' estimate of about 10% of total commitments in North America and 5% in Europe is one measure. Another comes from Form ADV filings: a November 2025 NBER working paper on continuation funds found median GP ownership of 5.8% in continuation funds against 3% in their legacy funds, with the 90th percentile at 24% against 11%, and attributes the gap to GPs rolling their carry into the new vehicle. Fund V's $120 million, about 13% of commitments, sits at the high end because the old fund was deep in carry.
Size matters because of what it does to the GP's payoff mix. At a 2.0x outcome on committed capital, the Fund V GP's $120 million earns $120 million of profit as an investor, while the tiered carry described below would pay it roughly $70 million on the other investors' $808 million. A manager whose own capital outweighs its carry has a direct stake in not overpaying at the transfer and in exiting well.
Fees and Transaction Costs in a Continuation Vehicle
A CV carries a recurring management fee and one-off costs to set up the vehicle and complete the sale, both negotiated with the lead.
The Management Fee: Rate, Base, and the Price
The rate is lower than a blind-pool fund's, because the manager runs known assets rather than sourcing new ones. Houlihan Lokey's figures of fees at or slightly below 1% of invested capital are summarized in the CV structure article, and William Blair found 75% of 2025 continuation funds charging between 50 and 100 basis points. The fee base is the part that moves with the deal. A CV charging on invested capital starts from the transfer value, so the price sets the base: the NBER authors note that a lower price reduces both the crystallized carry in the legacy fund and the fee base of the new one, while a higher price inflates both. Fees are often reduced in an extension period, and ILPA's draft asks GPs to disclose whether the lead, the syndicate, and rollers pay different rates.
Transaction and Formation Costs: Who Bears Them
Transaction costs of the sale itself, such as legal work and any transfer taxes, belong partly to the seller, while formation costs of the new vehicle belong to its investors. ILPA's 2023 guidance puts formation costs on rolling LPs and the acquirer, subject to a cap or monitoring by the limited partner advisory committee (LPAC), has selling LPs bear their proportionate share of sale costs, and says a GP that clearly benefits through extra fee revenue or a stapled commitment should share the costs. The 2026 draft describes practice more precisely: transaction costs typically split equally between the existing fund and the CV, and formation costs borne by CV investors, including rollers but not the lead, under a cap converging around 0.75% to 1%, with the GP paying its pro rata share. Who pays the advisor is covered in how PCA firms make money.
New Carry: Tiered Structures and Super Carry
The new vehicle's carry starts from zero at the transfer price. Profit is measured against what the CV's investors paid, not the legacy fund's cost, so value created before the transfer earns the GP carry once, in the old fund, and the new carry rewards only what comes after. Instead of a flat 20% above an 8% preferred return, CVs typically use tiered carry: a lower rate at modest returns that rises as the vehicle reaches higher multiples of invested capital, often tested together with an internal rate of return (IRR) threshold. ILPA's draft asks election materials to show each tier, its IRR or multiple test, and any GP catch-up. The same ratchet logic appears in management equity incentives in LBOs. An illustrative schedule, each rate applying only to the slice of profit inside its band, with no catch-up:
| Multiple of invested capital | GP carry on that slice of profit |
|---|---|
| Up to 1.25x | 0% |
| 1.25x to 1.75x | 10% |
| 1.75x to 2.5x | 15% |
| 2.5x to 3.0x | 20% |
| Above 3.0x (super carry tier) | 25% |
Applied to each $100 million invested, the schedule pays far less than a flat rate at every outcome, because the low bands absorb the first slices of profit. The comparison below uses three exits:
| Exit value per $100m invested | Profit | Tiered carry | Share of profit | Flat 20% carry |
|---|---|---|---|---|
| $150m (1.5x) | $50m | $2.5m | 5% | $10m |
| $200m (2.0x) | $100m | $8.75m | 8.75% | $20m |
| $350m (3.5x) | $250m | $38.75m | 15.5% | $50m |
The tiers keep carry low where buyers' return targets are only just met: at 2.0x the GP takes under 9% of profit, and the full 20% applies only to the slice between 2.5x and 3.0x. Above that sits the premium tier that has become a bargaining chip in competitive processes.
- Super Carry
A carried interest tier in a continuation vehicle or other GP-led transaction that pays the general partner more than the standard 20% of profits, usually only above a high return threshold. Evercore defines it as terms under which carried interest can exceed 20%.
Whether the higher rate applies to the top slice only or to all profit once the threshold is reached makes a large difference to its cost, so the mechanics matter as much as the headline percentage.
Why Buyers Grant Super Carry
Super carry is a concession buyers make to win an asset. Evercore reported it in more than a third of GP-led transactions in the first half of 2026, concentrated in processes for the highest-quality assets, a trend placed in the context of bid selection in the advisor's role in a GP-led. Other surveys count differently: William Blair found a carry tier above 20% in 15% of 2025 continuation funds, Lazard a premium carry tier in about 25% of its 2025 deals, and Houlihan Lokey one in about 7% of the CVs it reviewed, so the figures show direction rather than a single market rate. The arithmetic explains the appeal to a bidder. In the schedule above, the 25% rate adds $2.5 million per $100 million invested at 3.5x and nothing at 2.0x, so a buyer can offer the GP more upside while giving up almost nothing in the outcomes it prices to.
What Lead Investors Get
The lead that sets the price and terms usually negotiates preferred economics for itself. William Blair found preferred terms for lead investors in 41% of 2025 continuation funds, and ILPA's 2023 guidance asks GPs to disclose to the LPAC any discounted pricing or more favorable economics for acquirers relative to rolling LPs. The forms are practical: a lower fee or carry rate on the lead's own commitment, exclusion from formation costs, and legal costs paid by the CV up to a negotiated cap. How a lead earns those terms is the subject of lead investors and syndication.
Follow-On Capital and How It Changes the Economics
The follow-on reserve turns part of a CV into a new investment program, and each draw on it changes three things at once. The fee base grows as invested capital rises, the carry tiers are measured against a larger invested amount, and anyone who does not fund the draw risks dilution. ILPA's 2023 guidance allows three ways to price the new money: at the original CV entry valuation, at a market value set by independent advisors when the capital goes in, or through an instrument that does not dilute rolling LPs' equity. Its 2026 draft adds that rolling LPs should always be able to join follow-on funding pro rata and that extra commitments should be optional.
The entry-valuation method looks neutral because it reuses an accepted price, but it hands the growth since closing to whoever funds the draw. Rolling LPs who cannot top up, often because a new commitment needs approvals they cannot obtain in time, are the ones exposed, which is why ILPA wants the dilution mechanism explained in the election materials.
The economics are agreed at closing but tested at exit, and the downside case shows which terms carry weight. Suppose Fund V's company is eventually sold for 20% below the CV's entry value. New investors lose a fifth of their capital and the tiered carry pays nothing. The GP's $120 million commitment falls to $96 million, so the $100 million of carry it rolled is now worth about $80 million, $20 million less than if it had been taken in cash. Over a four-year hold, though, a 1% fee on $800 million of invested capital brings in about $32 million, more than the GP's $24 million capital loss. Weighing the GP's downside against the fees the vehicle pays is what separates an aligned CV from a fee-generating one, which is why buyers push the commitment up, ask how much of it is carry already earned, and treat a GP taking cash out as a question rather than a detail.
