The Continuation Vehicle Process Step by Step

Introduction

Most sales settle who is selling before anyone agrees a price. A continuation vehicle (CV) reverses that order. The general partner (GP) and a lead buyer fix the price first, and only afterwards does each limited partner (LP) in the old fund decide whether it is a seller at all. The price therefore has to be defensible before most of the people it binds have seen it, so the process front-loads disclosure to the limited partner advisory committee (LPAC) and ends with an election window that the Institutional Limited Partners Association (ILPA) wants measured in weeks, not days. For the private capital advisory (PCA) banker running it, each stage is a decision about what to fix and when: which assets and reference date, which lead, what the committee sees before it votes, and how long LPs get to choose. Three separate approvals sit inside the process and are easy to blur: the LPAC's consent to the conflict, any consent the limited partnership agreement (LPA) requires, and each LP's own election.

ILPA's May 2023 continuation fund guidance lists seven stages, and its draft replacement, published in June 2026, adds a timeline that places the LPAC's conflict vote immediately before the GP signs terms with the lead investor. The draft's comment period closed on August 5, 2026. Together they describe the order most processes follow, and what changes at each stage is the decision-maker as much as the task:

The price is fixed at stages four and five, before any LP outside the committee decides anything, which is why disclosure carries so much weight. The calendar is also anchored by a reference-date NAV (net asset value) that ages throughout. Houlihan Lokey's 2025 continuation fund study found a median of about 4.6 months between the reference date and the final letter of intent (LOI) or term sheet, with buyers diligencing more rigorously and LPAC scrutiny increasing. Add a minimum election window of four to six weeks and time to fund, and on the median roughly six months separate the mark the price quotes against from cash reaching selling LPs.

The first stage decides whether there should be a process at all. ILPA puts much of its weight here, because a weak commercial rationale or a conflicted advisor mandate cannot be repaired by a good auction later.

Testing the Rationale Against the Alternatives

ILPA's 2023 guidance asks the GP to explain, before initiating the transaction, why a CV beats a fund extension, a traditional exit, or additional co-investment, and to cover the companies' outlook, the new capital required, the projected time to realization, and an exit plan. The rationale deserves heavy scrutiny, it adds, when the fund still has unfunded capital or is within its first five years. The June 2026 draft asks for an upfront model comparing returns through the existing fund with returns through the CV, net of costs, and has the GP present any prior M&A bids, solicited or unsolicited, at the first LPAC meeting.

For the advisor this is analytical work before it is marketing work: what a third-party sale would fetch, what another year or two in the old fund would cost in fees and extension consents, and whether the companies need capital the fund cannot supply. The comparison from the investors' side is argued in CV vs sale vs dividend recap. The test is whether the case survives an LPAC member asking why the company was not simply sold.

Choosing the Advisor and Writing Its Mandate

The GP selects the advisor, but ILPA's 2023 guidance recommends that the engagement letter require it to represent the interests of the fund, not solely the GP, and that the LPAC review the selection, role, and fee, including how the fee is allocated among LPs, the GP, and the acquirer. It flags a trap in fixed fees: if a deal closes at lower than anticipated volume, selling LPs bear a disproportionate share of the cost. Who pays which fees across PCA mandates is covered in how PCA firms make money.

The draft tightens this in three ways. The GP should notify all LPs when it first appoints an advisor, because advisory costs fall on the fund whether or not a deal closes. Success fees and other incentives linked to the CV should be disclosed and reviewed by the LPAC. And the committee should be offered its own independent financial advisor, at the existing fund's expense, to judge whether the bid process was competitive.

Engaging the LPAC Before the Formal Proposal

ILPA's 2023 guidance says the rationale should be tested with the LPAC as early as possible, before a formal proposal to run a process or the hiring of an advisor. The draft adds a paper trail: a first version of ILPA's Continuation Fund Disclosure Template goes to all LPs when initial LPAC discussions begin, and the completed version accompanies the election materials. It also casts the committee as a sounding board on the length of the election period.

Early engagement is self-interested too. The draft warns GPs not to assume a waiver: a committee that feels rushed or under-informed can refuse or attach conditions. How the committee is composed and what its members owe other LPs is set out in LPACs, conflicts of interest, and ILPA principles. The two versions of the guidance differ most here:

The middle of the process produces the number every later stage has to defend. Unlike an LP portfolio sale, where many buyers price many fund interests, a CV auction converges on one lead investor whose price and terms become the transaction, so competitive tension matters as much as valuation.

Fixing the Perimeter, the Reference Date, and the Data Room

The perimeter, meaning which companies move and what share of each, is set before marketing, and the trade-offs between one asset and several are covered in continuation vehicles explained. Because the price is usually a percentage of the GP's own quarter-end mark, the reference date is a pricing choice: a stale mark in a rising market favors buyers, and in a falling market favors sellers. Houlihan Lokey reports that parties increasingly keep the date as current as possible or provide for a reference-date roll-forward, especially in cash-generative credit CVs.

Locked Box Pricing (Continuation Vehicle)

A pricing mechanism that fixes the purchase price against the assets' value at a reference date, usually the latest quarter-end NAV, and adjusts it only for specified cash flows such as contributions and distributions, not for working capital or later changes in value. ILPA's June 2026 draft describes it as common in CVs because it avoids complex post-completion adjustments.

The locked box moves post-reference-date valuation risk onto the new vehicle's investors, including rolling LPs, so the draft asks GPs to explain any gap between the CV price and prior NAV reporting. The materials resemble a company sale: a confidential information memorandum (CIM), management meetings, and a financial model. What differs is the audience. Both ILPA versions call for information parity between bidders and existing LPs, and the draft's election materials run from the CIM and an independent valuation report to the GP's leveraged buyout (LBO) model and a tax memorandum, so every LP, including those that will sell, may read the data room.

First Round, Lead Selection, and the Pull of Pre-Emption

The draft's timeline describes a two-stage auction: diligence meetings, non-binding proposals, a shortlist invited to deeper diligence, then binding proposals that determine the lead. The lead typically sets the price and terms the other buyers accept, which makes its selection the most consequential decision the advisor helps the GP make. Bids are compared on more than price:

The last item is where the conflict bites. A bid pairing a lower price with a stapled commitment can suit the GP and hurt selling LPs, and the draft says GPs should not favor bids that advance their own interests and should justify the winner with reference to any non-cash elements. Practice is also pulling against wide auctions: Jefferies' review of the first half of 2026 reported that pre-emptive transactions gained momentum as sponsors sought speed and certainty, and that syndicate capital for deals under $750 million had significantly decreased. A pre-emptive deal saves time but thins the evidence that the price was tested.

Negotiating Terms and Syndicating the Rest

Negotiation then moves to documents: the purchase agreement between the old fund and the CV, and the CV's partnership agreement with its fees, carry tiers, term, and GP commitment. ILPA's draft notes that formation costs are typically capped, with convergence around 0.75% to 1%, that the lead's legal costs are commonly paid by the CV subject to a cap, and that any cap on how much rolling LPs may reinvest must be disclosed. How the GP's carry is crystallized and rolled belongs to CV economics.

Unless the lead underwrites the whole equity, the advisor places the remainder with syndicate investors on the lead's terms, a stage described in lead investors and syndication, while the wider advisory work of benchmarking value and soliciting bids is the subject of the advisor's role in a GP-led.

With a price in hand, the question becomes who may accept it and on whose behalf. First, though, a valuation provider that did not set the price tests it, giving the approving parties something besides the GP's word.

Price Validation and the Fairness Opinion

In the process timeline, validation sits between the lead's binding price and the committee vote. ILPA's 2023 guidance calls for third-party price validation, and the fairness opinion that usually supplies it arrives late enough to test the negotiated number but early enough for the LPAC to read it before consenting. What the opinion covers, and what it leaves open, especially for rolling LPs, is a separate question from when it is delivered. The mechanics are explained in what a fairness opinion is, and the wider context in conflicts of interest, fairness opinions, and the ILPA guidance.

LPAC Conflict Consent

The LPAC vote waives the related-party conflict, and both ILPA versions time it late enough for members to see real terms. The 2023 guidance asks for a meeting to review the proposed acquisition agreement no less than 10 business days before terms are finalized for the election, with an in camera session before the vote. The draft holds the meeting immediately before signing with the lead, prefers a live meeting to written consent, and wants the materials, including a gross and net return model of the CV against the existing fund, circulated at least 10 business days ahead. It also encourages committees to condition approval, for example on a longer election period. Where a committee member is itself bidding, for instance through an affiliated secondaries business, the draft asks the GP to disclose it to the other members and says recusal should be considered.

LPA Amendments and Other Investor Consents

Some transactions also need the existing LPA amended, for example where its terms do not permit the deal as proposed or where the old fund must extend its life to keep a retained stake, and those changes go to the LPs at the LPA's threshold. The draft describes such cases as limited and the threshold as typically a supermajority of eligible participating LPs, a collective veto elections do not provide, and the 2023 guidance says the LPAC should not be asked to recommend that LPs approve them. The clauses involved are mapped in the LPA article.

The rows also fall at different times. LPAC consent precedes signing, any LPA consent is usually sought with the election materials, which under the draft should detail required amendments, and third-party consents run in parallel until satisfied as closing conditions. An advisor who plans them as a single approval tends to discover the gaps late.

The election is the only stage at which an LP without a committee seat decides anything, and its design determines whether that decision is informed or forced. The later stages then turn elections into cash and a new cap table.

The Election Pack and the Window

After signing, the GP circulates the election materials and the clock starts.

Election Pack (Continuation Vehicle)

The documents an existing LP receives to decide whether to sell or roll in a continuation vehicle: typically a disclosure memorandum, the proposed CV partnership agreement, the election form, subscription documents for rolling investors, and supporting valuation and tax materials. Under ILPA's June 2026 draft, the minimum election period runs from receipt of the complete pack.

The 2023 guidance asks for no less than 30 calendar days or 20 business days, noting that LPs had sometimes had as little as 10 days; the draft asks for 30 business days from receipt of the complete pack, and longer for complex multi-asset deals. Both treat non-responders as sellers, so no one is rolled by default. If the election agreement adds representations, waivers, or indemnities beyond the existing LPA, the draft says they should be explained and the window extended to allow review. The choices inside the window, including partial elections and the status quo option, a way of rolling on protected terms rather than a third destination, are covered in LP elections and status quo terms.

The window matters because many LPs must treat a roll as a new investment, with diligence and approvals that do not fit a short timetable. Some institutions have changed their own governance instead, as Rhode Island's March 2025 staff memo on GP-led secondaries and the minutes of its State Investment Commission's March 26, 2025 meeting show.

Time appears to change outcomes. A November 2025 NBER working paper using a hand-collected sample of 472 continuation funds found that only about 6% of the legacy LPs in its sample rolled, down from about 14% to 15% in 2018 and 2019 to under 5% by 2025, but that LPs were more likely to roll when given longer to decide. Rolling LPs also negotiate inside the window: both ILPA versions want existing side letters to carry over, and the draft's timeline ends the election period with an assessment of rollover appetite and side letter talks. Every dollar rolled is a dollar new investors do not fund, so final allocations wait for the count.

Regulatory and Third-Party Consents

Conditions outside the fund run in parallel. The draft asks GPs to disclose those that add cost or delay: lender consent where the assets are subject to the fund's security arrangements, which can force a refinancing; regulatory approvals for the transfer or a planned add-on; and co-investors in the same companies, who should get a parallel, consistent process. Most CVs also use warranty and indemnity (W&I) insurance, which caps the selling fund's liability under the purchase agreement so it can distribute proceeds at closing.

Funding, Closing, and the True-Up

At closing, new investors and any rolling LPs topping up fund the vehicle, the old fund transfers the assets, and selling LPs are paid the locked-box price adjusted for post-reference-date cash flows. Where there is deferred consideration, part arrives later: Houlihan Lokey found deferrals in 23% of sampled CVs, with a median of half the price deferred for a median of six months. ILPA's draft describes transaction costs, including any transfer taxes, as typically split equally between the old fund and the CV, and it asks GPs to warn selling LPs in advance of any such delay, and to report the old fund's performance on the transferred assets only up to completion.

Laid end to end, the stages share one fixed resource: time measured from the reference date. The mark ages while the rationale is tested, the rounds run, and the committee reviews, and the stage that gives most LPs their only decision comes last. When earlier stages run long, the pressure falls on the election window, and a compressed window turns an election into a default sale for any LP whose governance cannot move that fast. Planning the calendar backward from a full election period, rather than treating the window as whatever time is left, is the advisor's most practical protection for both the price and the process.