Continuation vehicles: ILPA finalises its guidance

On 20 October 2026, the Institutional Limited Partners Association (ILPA) published its final continuation vehicle (CV) guidance, Continuation Vehicles: Advancing Alignment Through Best Practices. It replaces ILPA's 2023 continuation fund guidance, which ILPA has confirmed is now superseded.

In our earlier article, we looked at the key themes of the draft and noted that it remained to be seen how closely the final guidance would follow it. Many of the draft's more prescriptive "comply or explain" requirements have become principles-based standards that provide more flexibility, however, the economic protections for rolling limited partners (LPs) have been kept and, in some respects, strengthened. This article summarises the main developments.

A principles-based framework 

The final guidance describes itself as "designed to guide, not dictate". ILPA states expressly that a CV transaction that does not follow the practices in full "is not in itself a sign of a flawed process". Instead, any departure should prompt greater transparency, engagement and disclosure. As the guidance becomes established, a general partner (GP) that materially departs from the principles should be prepared to explain how it has otherwise addressed LPs' concerns.

While this is a meaningful change in tone from the draft, managers should not read it as a dilution of substance. The guidance remains clear that "the burden is on the GP" to demonstrate GP–LP alignment, and we expect LPs and LPAC members to use it as the benchmark for assessing CV processes.

The “deliberate choice” principle that we highlighted in the draft survives. In ILPA’s view, a CV should be selected on its merits rather than as the default route, and it is for the GP to demonstrate why it gives existing LPs a better result than the other options available at the time. A new appendix sets out what GPs should disclose when assessing a CV against other exit and GP-led solutions. The guidance also notes that the earlier in a fund's life a CV is proposed, the stronger the rationale will need to be. Multiple CVs in the same portfolio may also attract heightened scrutiny from LPs going forward, now that the guidance has given them a clearer framework against which to assess them.

Election period reverts back to 20 clear business days

The draft proposed a minimum election period of 30 business days. The final guidance instead recommends that LPs should generally have no fewer than 20 "clear" business days after they receive the final election pack, with a longer period where the transaction is complex or involves several assets. A "clear" business day is a complete business day, and the day on which the period begins is not counted.

ILPA accepts the point made by many in the industry that longer election periods can make the reference-date valuation stale. For managers, this is a welcome step back from the draft. That said, the guidance does suggest that the 20-day period should be treated as a starting point and not a safe harbour. ILPA notes that it may be inadequate for a complex multi-asset CV involving assets that electing LPs know little about. It also encourages LPs to negotiate minimum CV review periods in side letters for future commitments.

"Remain-in-place" option

The biggest departure from the draft relates to the "remain-in-place" option, which would give LPs who do not wish to sell or roll the ability to continue holding their interest in the CV assets within the existing fund, without any change to their terms. The draft listed it among the election options that GPs were expected to offer or explain away. The final guidance treats it as appropriate only where it is structurally feasible, can be offered without impairing the value, pricing, execution or governance of the transaction, and does not create new material conflicts that cannot be adequately mitigated.

A new appendix sets out the case against the option in many transactions. These include the difficulty of later selling a residual minority stake, the potential need to run the existing fund for two LP groups, and the added cost and complexity. The guidance describes a strip sale or remain-in-place structure as "liquidity, not an exit". Instead, ILPA suggests that GPs can give LPs the choice to roll on terms that, taken as a whole, leave them economically in at least as good a position as the existing fund.

More generally, the presence or absence of any particular sell/roll option is not, by itself, a sign of an unfair process. ILPA sets out that the GP should explain why the options offered are proportionate, cost-effective, appropriate to the asset and operationally feasible. If full optionality is not offered, the GP should explain how any fixed splits were set.

Economic terms: a broader "no worse off" test

The draft required that there should be no overall increase in fees evidenced in "absolute dollar amount" terms and carry for rolling LPs should be at least as favourable as the existing fund. The final guidance moves to a broader, modelled comparison that should leave “rolling LPs, on the whole, no worse off economically than if the CV had not occurred”. 

• There should be no overall increase in management fee liability for rolling LPs, assessed on a like-for-like basis across all fund-level economics, including administrative, upfront and other fees, over modelled hold-period scenarios using good-faith, reasonable assumptions. 
• There should be no overall increase in the blended, risk-adjusted carried interest cost to rolling LPs, modelled using comparable return outcomes. 
• There should be no crystallisation of carried interest for rolling LPs; any deviation should be fully explained. GPs should disclose a comparison of their own economics in "with-CV" and "without-CV" scenarios.

ILPA's key test is "whether the GP is better off with the CV than without it".

Rolling LPs may participate on the same terms as new CV investors, on terms designed to mirror the economics of the existing fund as closely as possible (a status quo option), or on a combination of both. Carry resets are recognised as longstanding market practice in some asset classes (credit and real estate) and outside the US. However, the mechanics should still be fully explained in the election pack.

Carry and sponsor reinvestment

The draft expected crystallised carry to be rolled into the CV. The final guidance asks that "a significant and meaningful portion" of crystallised carry (net of tax) relating to selling LPs' interests, and of returns on the GP's sponsor commitment, be rolled. For funds with whole-of-fund waterfalls (typically European), the guidance recognises that only crystallised carry attributable to the CV assets should be reinvested. Requiring all crystallised carry to be rolled could force carry from non-CV assets into the CV.

There is also a focus on the source of the GP's reinvestment. Funding a sponsor commitment through debt or third-party sources may be seen as the GP "banking" its carry and de-risking while asking LPs to extend their exposure. The election materials should identify who is providing the reinvestment and explain any partial cash-out, for example to meet a tax liability arising when carry crystallises. 

Disclosure and the election pack

The draft framed the ILPA Continuation Fund Disclosure Template as the expected disclosure format. The final guidance allows the completed template "or equivalent GP-prepared Q&A" with supporting materials, delivered to all existing LPs before the election period starts. The election pack should, at a minimum, include:

• a GP-prepared confidential information memorandum covering, among other things, transaction costs and how they are allocated, estimated returns, the basis for the price compared with at least the last four quarterly valuations, any price validation evidence, the GP's CV track record, and a tax summary of the sell and roll options;
• a transaction pricing model, including any CV financing arrangements; and
• the subscription and election agreements, the transaction agreement or a summary of its key terms, a structure diagram, and the CV's LPA.

Existing LPs should have access to the same data room as the lead and syndicate investors, subject to privilege, competitive sensitivity and material non-public information. Access to the data room alone is not a substitute for a concise, plain-English summary. Co-investors should be given at least the same level of information as the wider LP base. A clear summary of any warranty and indemnity (W&I) insurance policy is also expected.

The guidance also sets limits on election agreements. They should not include broad GP conflict waivers, shift responsibility for the process to LPs through waivers or indemnities, or add commercial terms that are not disclosed in the election materials. Waivers of unknown claims are generally not appropriate, and any "no reliance" acknowledgement should be clearly justified.

Pricing and valuations

Valuations remain important. The final guidance looks for the price to be tested, either through a competitive sale process or through validation by an independent third party, backed up by a fairness opinion "or similar". It also recognises that, depending on the circumstances explained to LPs, a sufficiently robust sale process could justify dispensing with a fairness opinion and its associated cost. If a fairness opinion is commissioned, it should cover all of the CV assets rather than just the portion being acquired by the lead investor. The valuer's scope, any relationships with the GP and its fee basis (including any success fees) should be disclosed to the LPAC.

Bid information remains subject to disclosure. LPs should receive a summary of the buyers approached, the bids received, pricing and the rationale for the preferred bid, but now "subject to binding confidentiality limitations and reasonable commercial sensitivities". Material departures from the fund's valuation policy should be explained to the LPAC as early as possible and to LPs no later than the sell/roll decision. Initial corporate advisory fees on structuring solutions should generally not be success-based.

These points sit alongside the UK valuation developments discussed in our earlier article, including HM Treasury's proposed reform of external valuer liability under the AIFM Regulations and the FCA's proposed extension of valuation rules to all AIFMs. Together, they continue to support a more developed market for independent pricing of CV transactions.

Conflicts and the LPAC

The guidance confirms that the LPAC's role is to oversee the process rather than negotiate its terms, and that it is for the GP alone to design and run a fair process. Notably, ILPA has dropped the draft's description of the LPAC as a "gatekeeper". GPs should:

• engage the LPAC early and give at least 10 business days' notice (unless mutually waived) before the formal conflicts waiver meeting, together with the completed disclosure template;
• seek explicit LPAC approval for each conflict, rather than a blanket waiver, and not rely on generic LPA pre-clearance provisions unless they are specific to CVs;
• hold in-camera sessions when an LPAC member asks for one;
• where proportionate, allow the LPAC to appoint its own advisers at the fund's expense; and
• promptly notify all LPs of the LPAC's decision.

Indirect LPA provisions, such as alternative investment vehicle or warehousing provisions, should not be relied on to justify a compressed timetable.

Other points 

LPs that do not make an election should be deemed to have elected to sell, and an LP should roll only with its explicit prior written consent.

An LP's ability to roll should not be conditional on it committing to other funds managed by the GP.

The CV should be fully funded. A GP should not reduce the purchase size to match the capital available, as this would turn the CV into a strip sale. Roll funding conditions should be avoided unless fully explained, including the dilution mechanism.

An LP's inability to provide new capital should not, of itself, leave it with no option but to sell. That said, if additional funding is integral to the investment case for the CV, the GP may require rolling LPs to participate in it, as long as the resulting dilution for those that do not is clearly explained.

Rolling LPs should receive substantially equivalent rights, protections and tax attributes, and relevant side letter protections should carry over, subject to necessary updates.

GPs should give a clear explanation of the CV's tax and regulatory features and the high-level tax treatment of the sell and roll options, and should take account of any side letter tax protections.

In summary

The final guidance is more flexible than the draft. As we anticipated, the practical impact for GPs is likely to be felt most in disclosure, in explaining why a CV is the best route to value, and in valuations. The guidance has no binding force, but it is influential, and LPs and LPAC members can be expected to refer to it when reviewing CV proposals. Managers considering a CV should therefore have it in mind when preparing election packs, comparative modelling and conflicts processes.