Introduction
When a private equity fund reaches the end of its term with a strong company still inside, the contract has already chosen an outcome: wind down, which means selling. The Institutional Limited Partners Association (ILPA) model agreement gives a fund ten years plus two one-year extensions, and ILPA's principles say that without investor consent the general partner (GP) should then liquidate within a year. Every alternative departs from that default sale and needs someone's agreement: a continuation vehicle (CV) needs each limited partner (LP) to choose between cash and rolling, a fund extension needs whatever approval the fund's documents require, and a dividend recapitalization needs lenders. The test a private capital advisory (PCA) banker applies is whether the route the GP prefers is one existing investors would have picked for themselves.
The Routes Open to a Mature Company in an Aging Fund
The routes compete in practice. In Dechert's 2026 private equity outlook, a July 2025 survey of 100 private equity executives, 46% were using GP-led secondaries or CVs to deliver distributions and 57% private credit for refinancings and recaps at portfolio companies.
Full Sale: Cash for Everyone, Upside for the Buyer
A third-party sale, to a strategic buyer, another sponsor, or the public through an initial public offering (IPO), is the exit the fund was built for. Every LP is paid through the distribution waterfall, the GP earns the carry it produces, and the exposure ends. Competition for control gives the strongest price evidence, but the upside passes to the buyer and the market sets the timing, as this comparison of strategic, sponsor, and IPO exits shows.
Continuation Vehicle: Cash for Sellers, Time for the Asset
A CV splits the fund. LPs electing to sell receive cash at a lead investor's price against reference-date net asset value (NAV), while rolling LPs keep their exposure in a new vehicle the GP still controls. The GP may crystallize carry and earns fees on a base reset at the transfer value, which is why a higher CV price pays the GP twice.
Fund Extension: Time Without Cash
An extension keeps the company in the old fund for another year or two: no cash, no new price, carry left in the old waterfall. ILPA Principles 3.0 recommends one-year increments, at most two, approved by the limited partner advisory committee (LPAC) and then a supermajority of LP interests, and no fees after the original term unless LPs agree. The limited partnership agreement (LPA) governs, and it can be looser.
- Fund Term Extension
A lengthening of a private fund's contractual term beyond its original end date, usually in one-year increments and subject to the approvals the limited partnership agreement requires. Once approved it binds every investor in the fund.
A GP deep in carry shares the bet on more time with its LPs; one below its hurdle mostly gains fees, as the fund lifecycle article explains. An LP wanting cash can leave only through the secondary market.
Dividend Recap: Cash for Everyone, Paid With Company Debt
In a dividend recap, the company borrows and pays a dividend to the fund, which passes it to LPs. The fund keeps full ownership and upside, and the distribution runs through the waterfall like any other, so a fund in carry pays the GP on it, with any clawback as protection if the company later disappoints. The structuring itself is covered in the dividend recapitalization explainer.
- Dividend Recapitalization
A transaction in which a portfolio company raises new debt, or refinances existing debt at a larger size, and pays the proceeds to its shareholders as a dividend. For a private equity fund it returns cash without a sale, at the cost of higher leverage at the company.
A fifth route sits at fund level. A NAV loan borrows against the portfolio, and ILPA's 2024 guidance on NAV-based facilities lists it as an alternative to single-company recaps, sales, and continuation funds, recommends LPAC consent unless the LPA permits a facility, and notes that the distributions it funds are often recallable. NAV lending in practice covers the terms.
Comparing the Routes on Value, Cash, Risk, and Alignment
Side by side, the routes differ less in headline value than in who gets cash, who keeps the upside, and who must agree:
| Route | Value realized; upside kept by | Cash to existing LPs | Risk added | How the GP is paid | Consent needed |
|---|---|---|---|---|---|
| Full sale | All, at a control price; buyer | All LPs, at closing | Execution, timing | Carry; fees end | Only LPA consents |
| CV | Sellers' share; rollers and GP | Sellers only | No control auction; roller concentration | Carry may crystallize; new fees and tiers | Each LP elects |
| Extension | None; all LPs | None yet | Longer company and market risk | Old carry; fees if the LPA allows | LPAC, then LP vote |
| Dividend recap | Part, as cash; the fund | All LPs, soon | Company leverage | Carry on the distribution | Usually none |
| NAV loan | None; the fund | All LPs; often recallable | Fund-level debt | Unchanged | LPAC, unless permitted |
Only a sale converts all the value at a control price, and it ends everyone's upside; the debt routes pay everyone with money someone repays.
Alignment differs too: an extension can prolong fees on a shrinking base, while a CV can pay crystallized carry and start a new fee stream on the same asset. Tenders and strips answer a different question, which LPs need cash, as tender offers and strip sales shows.
A Worked Comparison for One Existing LP
Take an illustrative company with an enterprise value of $1,000 million and $400 million of debt, its $600 million of equity held by a hypothetical Fund VIII, in which one LP owns 5%, or $30 million. Two years later the company is worth 20% more or 20% less. The CV prices at 95% of NAV with status quo terms for rollers; the recap adds $200 million of debt at 8%, or $32 million of interest over two years. Carry, fees, and discounting are ignored.
| Route for the LP | Cash now | Total if value rises 20% | Total if it falls 20% |
|---|---|---|---|
| Full sale at NAV | $30.0m | $30.0m | $30.0m |
| CV, sell at 95% | $28.5m | $28.5m | $28.5m |
| CV, roll | $0 | $40.0m | $20.0m |
| Extension, then sale | $0 | $40.0m | $20.0m |
| Recap, then sale | $10.0m | $38.4m | $18.4m |
Three readings follow:
- The CV discount. A seller gives up $1.5 million against a sale at NAV, but only if a buyer would pay NAV.
- Rolling versus extending. The exposure is identical; the roll is chosen by each LP, the extension imposed on all.
- The recap's trade. It brings $10 million forward for $1.6 million of interest, and in the downside leaves $168 million of equity beneath $600 million of debt.
The thinner cushion matters. A study of private equity dividend recaps by Bhardwaj, Gupta, and Howell for the National Bureau of Economic Research (NBER) found that total debt rose 84% on average, that the chance of financial distress increased by 2.4 times the targeted firms' mean, and that recaps increased deal returns while reducing fund returns.
Framing the Recommendation to the LPAC
The committee consents to a conflict, so the GP's preferred route must survive comparison from the investors' side.
Putting Every Route on One Basis
The routes should reach the committee as the example presents them: per LP, at one reference date, net of costs, with a downside case. The sale column needs real bids or a market check, a lens covered in the advisor's role in a GP-led, which is why the continuation vehicle process surfaces prior bids early.
Showing Where the GP Gains
The comparison should also show the GP's economics under each route: when the preferred route pays the GP most, its evidence must be stronger. The advisor has the same problem, since its success fee depends on a CV closing, and a recommendation that could never come out as "sell" or "extend" is not advice. The sponsor's coverage banker, paid on a sale, will argue the other side.
In practice the routes are often sequenced rather than chosen. A one-year extension can buy time for a sale; a sale drawing weak bids becomes the market check behind a CV price; a recapitalized company can later be sold or moved into a CV, its new debt part of every buyer's price. The recommendation is an order of moves, and the test at each is whether the next step gives existing investors the cash, time, or risk they would have chosen.
