Continuation funds, i.e. the establishment of new vehicles by the GP in order to hold on to an asset, have become increasingly popular. The new ILPA guidance calls for GPs to pursue processes and deal structures that maximize alignment and LP engagement.

Here are some of the key takeaways:

• Conflicts of Interests. GPs should bring all conflicts of interests for vote at LPAC level, irrespective of whether or not the conflicts are pre-cleared in the LPA.
• Due timing. LPs should have the option to roll over or sell, and should get at least 20 business days or 30 calendar days to make such decision.
• Status quo offer. There shall be no increase of management fee or carried interest (and no decrease of preferred return hurdle) for roll over vehicles, and side letters should apply for new vehicles.
• Alignment. All carried interest from exiting LPs should be rolled over to the new vehicle.

We see a move towards more assets being put into continuation funds and we are excited to be part of the development of these terms and processes.

If you want to know more, please feel free to contact us.

The Institutional Limited Partners Association (ILPA) is a global association dedicated to advancing the interests of LPs in private funds.

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