Introduction
Among its general principles for continuation funds, the Institutional Limited Partners Association (ILPA) sets a counterfactual: rolling LPs should be no worse off than if the transaction had not occurred. Its June 2026 draft keeps the sentence, and it is the right yardstick for every sell-or-roll election. When a general partner (GP) moves a company into a continuation vehicle (CV), each limited partner (LP) in the old fund decides what to do with its share, choosing from a menu designed by the GP and its private capital advisory (PCA) banker. The advisor structures and explains the options but tells no LP what to choose; its task is to make cash and continued exposure comparable on fair terms, which status quo terms are meant to secure.
Sell, Roll, or Split: The Choices in a CV Election
Every election answers one question: how much of the LP's pro rata share of the transferred assets it wants as cash at the CV price, and how much as continued exposure. ILPA's 2023 guidance lists rolling pro rata, selling, rolling and buying more, or a combination, which reduces to three shapes:
- Sell all. Cash for the LP's share of the price, less its share of sale costs.
- Roll all. Its proceeds are reinvested in the CV, sometimes with a top-up of new capital.
- Split. A partial election sells part of the share and rolls the rest.
The June 2026 draft says each LP should choose the split freely, and that GPs should explain restrictions, such as a pre-set 50/50 ratio, and any standard option left off the menu. The window, the pack, and non-responders are covered in the continuation vehicle process.
Why Status Quo Is a Way of Rolling, Not a Third Option
The phrase suggests an LP can leave things as they are. It cannot: at closing the asset belongs to the CV whatever any LP elects. A status quo option governs the terms on which a rolling LP follows the asset; its alternative is a reinvestment option, under which rollers take the new investors' economics.
- Status Quo Option (Continuation Vehicle)
An election that lets an existing LP roll its share of the transferred assets into a continuation vehicle while keeping its original fund's economics: no higher fee rate or new fee base, no worse carry or hurdle, and no crystallization of carried interest on the rolled interest. It is a set of protected terms for rolling, not a separate destination.
Keeping exposure inside the old fund is a different structure, which the draft calls remain in place: the CV buys only the sellers' share. The draft warns that it adds cost, deters leads, and can leave the old fund extending its life to exit a minority stake.
What Status Quo Terms Protect Under ILPA Guidance
The 2023 Definition: Four Terms That Do Not Change
ILPA's guidance is best practice, binding only where fund documents or negotiated deal terms adopt it. Its May 2023 continuation fund guidance says LPs must be offered participation with no change in economic terms, defined by four conditions: no increase in the management fee rate; the same fee base the existing fund used at the time of the transaction; no higher carry, lower hurdle, or other GP-favorable waterfall change; and no crystallization of carried interest for rolling investors. The fee base does the most work, because a CV normally charges on transaction value rather than the old fund's cost. How accrued carry is crystallized for others belongs to CV economics.
The June 2026 Draft: A Net Test on Fees and Carry
The replacement, released as a draft for comment in June 2026, with comments closed on August 5, applies an overall test: no overall increase in rollers' management fees, measured in absolute dollars, and none in carry even under tiered terms. The GP may offer new-investor terms, a status quo basis, or a mix, but must show through modeling that rollers are no worse off. Top-ups should be optional, and rolls should not be conditioned on minimum commitments or stapled financing, nor scaled back. Current top-up practice is recorded in continuation vehicles explained.
Practice lags both versions. William Blair's 2025 secondary market report found that in 2024, 59% of continuation funds offered rollers only a reinvestment option, 19% a modified status quo, and 22% a true status quo. Houlihan Lokey's 2025 continuation fund study saw a true status quo in only 15% of CVs reviewed, citing structural difficulty, notably in single-asset deals.
How an LP Weighs Cash Against Continued Exposure
The facts are the same for every LP; the answer is not. The first comparison is price against value: an LP whose own forecast, at its own cost of capital, puts the asset above the CV price has a reason to roll, the hold value logic that prices an LP interest. The second is the portfolio: an LP above its private equity target, the problem behind the denominator effect, may sell at any fair price, and rolling concentrates it in one company and one manager. The rest are practical:
- Governance. Whether staff can approve a roll inside the window.
- New commitments. Whether rolling requires a top-up.
- Tax. Whether the roll triggers a gain.
Rolling as a New Investment Decision
The draft notes that for many LPs rolling creates a concentrated direct exposure that must be approved as a new investment, often too slowly to fit the window. Some institutions have changed their delegations. The Alameda County Employees' Retirement Association (ACERA) amended its private equity investment policy in February 2025 so that staff, in line with its consultant's recommendation, can approve investing in a continuation vehicle or taking the liquidity; Rhode Island's State Investment Commission made a similar change that year.
Tax, Terms, and an Illustrative Election
The draft contrasts a roll that crystallizes no gain with an after-tax roll, where the rolled amount is net of tax, and notes that blocker entities complicate the choice; the GP should explain the structure but need not optimize every investor's outcome. The logic resembles management rollover equity in a buyout.
- Tax-Free Roll
A continuation vehicle rollover structured so that an existing LP's interest carries over without crystallizing a taxable gain or loss, keeping its original cost basis.
Terms can matter as much as price. An LP owns 2% of a fund whose company moves to a CV at $1 billion, a $20 million share against a cost share of $8 million. The old fund charges 1% on net invested capital, the CV 1% on transfer value, and new terms require a 15% top-up; figures are illustrative and ignore costs.
| Election | Cash at closing | Exposure kept | Annual fee on it | Carry on it | New capital |
|---|---|---|---|---|---|
| Sell all | $20 million | None | None | Old waterfall on proceeds | None |
| Roll on new terms | None | $20 million | $200,000 | May crystallize; new tiers | $3 million |
| Roll on status quo | None | $20 million | $80,000 | Old waterfall continues | Optional |
| Split 50/50, status quo | $10 million | $10 million | $40,000 | Old waterfall on half | Optional |
The same exposure costs $120,000 a year more on new terms, so under the draft's dollar test that roll needs an offset elsewhere. The split row shows what a partial election is for: some liquidity now, the rest on protected terms.
What the Evidence Says About How LPs Choose
Most legacy LPs sell, but the figures use different bases. A November 2025 National Bureau of Economic Research (NBER) working paper, Selling to Yourself: Continuation Funds in Private Equity, found that 5.7% of legacy investors rolled across 472 continuation funds. It is a count of LP decisions: each LP counts once whatever its size, full and partial rolls are not separated, and the best data are for US public pensions, which disclose commitments. The share fell from about 14-15% in 2018-2019 to below 5% by 2025, and among public LPs from roughly 30% in 2018 to about 2% by 2024. LPs rolled more often given a longer election period and less often into single-asset funds.
| Source | What it measures | Figure |
|---|---|---|
| NBER working paper (Nov 2025) | Legacy LP decisions in 472 funds, counted by LP | 5.7% rolled |
| CFA Institute report (Sept 2025) | Estimate drawn from industry sources | 80-90% cash out |
| Houlihan Lokey study (2025 deals) | Market participants' view | About 10% rolled historically, 15% in 2025 |
The CFA Institute's September 2025 report on continuation funds draws its estimate from industry sources including Jefferies, not a disclosed sample, and neither it nor Houlihan Lokey states whether it counts investors or dollars.
The useful question about a single deal is why its roll rate is low. The NBER authors find rolling tracks each LP's liquidity needs and policies at the time: investors choosing cash for their own reasons. A low rate produced by a reset fee base, a mandatory top-up, or a short window means LPs pushed out by the terms. With a genuine status quo, a free split, and a full window, the sale most LPs still choose becomes a decision about the asset and their own portfolio, which is the test ILPA's counterfactual sets.
