Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

ILPA’s Final Continuation Vehicle Guidance: From ‘Comply or Explain’ to Principles-Based Best Practice

Skadden Publication / The Preferred Return

Greg Norman William Adams

Executive Summary

  • What’s new: In October 2026, the Institutional Limited Partners Association (ILPA)  published final guidance on continuation vehicles, building on its 2023 guidance and following a public comment period on draft guidance released earlier in the year.
  • Why it matters: The final guidance is expressly principles-based. Major changes from the draft include a 20-clear business day minimum election period, a narrower limited partner advisory committee (LPAC) role focused on conflicts oversight, greater flexibility on price discovery and fairness opinions, and a modelling-based test for rolling LP economics.
  • What to do next: GPs should review their playbooks, conflicts policies and template election documentation, and LPs should consider how their internal processes and fund documentation can be adapted.

__________

In October 2026, the Institutional Limited Partners Association (ILPA) published final guidance on continuation vehicles (CVs).

CVs are now a structural feature of the private equity market. CVs represented roughly 14% of sponsor-backed exits globally in 2025, up from 5% in 2021, as a prolonged challenging exit environment has led general partners (GPs) to transfer assets into vehicles they continue to manage rather than pursue traditional M&A or IPO exits.1 As we noted in our April 2026 article, “Mainstream, Not Marginal: What’s Next for Continuation Funds,” the increasing prevalence of CVs was likely to lead to more standardised practices. ILPA’s final guidance is the latest and most comprehensive step in that direction.

As CVs continue to evolve as a portfolio management tool, the guidance is likely to become an important reference point for limited partner advisory committees (LPACs), limited partners (LPs) and lead investors evaluating CV processes. In this article we discuss the scope and status of the final guidance, its key recommendations, the principal departures from the draft guidance and what drove them, and the practical implications for GPs and LPs.

Scope and Status of the Guidance

The guidance is principles-based and designed to “guide, not dictate” CV transactions by focusing on core expectations rather than an exhaustive set of prescriptive requirements. ILPA acknowledges that CV transactions are highly fact- and circumstance-specific and that GPs must retain flexibility to exercise judgment in the best interests of existing LPs. Consequently, the guidance states that a CV transaction that does not conform to the guidance in full is not, in itself, a sign of a flawed process. However, material departure from the guidance should prompt greater transparency, engagement and disclosure with LPs.

This represents a notable shift from the 2023 draft guidance, which was criticized by sponsors and other market participants. The criticism focused on the draft guidance’s departure from the principles-based approach of the 2023 guidance, setting out “comply or explain” rules that would be difficult to follow in practice, risked adding costs and delays, and did not take into account CV products that differed from the traditional single-asset structure. The final guidance has responded to many of these concerns, but ILPA retains:

  • Firm expectations of disclosure substantially equivalent to the ILPA Continuation Fund Disclosure Template.
  • Symmetrical information sharing between existing LPs and new investors.
  • Explicit LPAC approval of each conflict.

The guidance is written from the perspective of existing LPs facing a sell/roll decision in a closed-ended private fund, rather than incoming third-party CV investors or investors in other strategies, and remains focused on single-asset structures. While it may be relevant to other asset classes such as private credit and infrastructure, ILPA acknowledges that these strategies make more regular use of multi-asset CVs (MACVs) that may require certain departures from standard buyout CV terms.

Key Recommendations From the Guidance

Deliberate Choice and Commercial Rationale

A central theme of the guidance is that a CV should be a deliberate structuring choice, not a default, given that the GP is inherently conflicted when acting as both buyer and seller. GPs should engage the LPAC early and demonstrate why a CV is preferable to the other exit or liquidity options assessed, including whether a third-party sale or IPO was considered. The guidance sets out a framework of factors to inform that rationale, including fund lifecycle stage, alternatives considered (such as net asset value (NAV) facilities, strip sales, tender offers and annex funds), residual portfolio impact, cost burden and GP alignment.

The guidance also flags situations warranting heightened scrutiny. For example, the earlier in a fund’s life a CV is proposed, the stronger the rationale should be, and multiple CVs in one fund require a clear commercial rationale for each transaction independently.

Conflicts Management

ILPA frames a CV as a related-party transaction in which conflicts cannot be eliminated and must be actively managed. The burden is on the GP to disclose each CV conflict completely, accurately and in a timely fashion, to demonstrate how each conflict is managed and mitigated, and to avoid generic disclosure and blanket conflict clearance. GP allocation and conflicts policies should address CV transactions, be followed in practice and be made available to LPs on request.

The final guidance permits a GP to rely on limited partnership agreement (LPA) conflict preclearance provisions only if they are CV-specific and LPs reviewed them before investing. This is a departure from the draft guidance, which stated that GPs should not rely on any preclearance provisions. Regardless of any presumptive waiver, GPs still should seek to mitigate conflicts and clear them through the LPAC. GPs should not rely on indirect LPA mechanisms, such as alternative investment vehicle or warehousing cross-trade provisions, to justify compressed timetables or limited election materials.

ILPA has not, however, abandoned its skepticism of preclearance. Alongside this more permissive approach to CV-specific provisions, the guidance recommends that LPs resist CV-specific conflict preclearance terms and challenge warehousing and cross-trade provisions when negotiating new fund documents.

The guidance identifies a non-exhaustive list of conflicts, including conflicts associated with the preferred bid (e.g., a bidder’s commitment to the GP’s flagship fundraising) and conflicts of LPAC members (e.g., where another part of an LPAC member’s firm is acting as lead investor).

The Role of the LPAC

The final guidance defines the LPAC’s role as to assess whether the GP has adequately identified, disclosed and managed its conflicts in a manner that is fair to existing LPs. The LPAC is not an active negotiating party, and the GP should not seek to “pass off” process construction and management to it. LPAC members owe no duty of care or loyalty to other LPs and responsibility for a fair and transparent process remains solely with the GP.

Within that role, the guidance sets out detailed procedural expectations for conflicts, including:

  • At least 10 business days’ prior notice of the formal conflicts waiver meeting (unless mutually waived), accompanied by the completed ILPA Continuation Fund Disclosure Template or a substantially similar document.
  • A virtual attendance option, open Q&A with the GP present and in-camera sessions without the GP when requested.
  • Explicit approval of each conflict, with one vote per member unless LPAC governance provides otherwise.
  • Prompt notification to all LPs of the LPAC’s decision.

GPs should also disclose any conflicts involving LPAC members and indicate whether recusal is being considered or encouraged.

The LPAC may condition its conflicts waiver on remediation of identified deficiencies. Even where the LPA is silent, the GP should, as a matter of best practice, offer the LPAC the option to appoint its own legal adviser at the fund’s expense where proportionate to the conflicts and the CV’s complexity.

This represents a clear step back from the draft, which would have made the LPAC more of an active “gatekeeper,” with a right to appoint independent financial advisers at the fund’s cost, and encouraged multiple LP town halls. Critics noted that the term implied a much greater oversight role than the LPAC’s traditional conflict clearance function. They also warned that multiple meetings, town halls and separate advisers would add cost and delay. The final guidance adopts the narrower view, emphasising that LPAC members may act in their own interests and that responsibility for the process remains with the GP, and reframes independent advice as an offer of legal advice where proportionate.

Price Discovery and Fairness Opinions

GPs should provide evidence of a competitive auction process or other independent third-party price validation. The guidance recognises that, depending on the circumstances, a strong competitive process may be sufficient and may avoid the need for a costly fairness opinion. Where the GP uses a targeted, shortened or single-buyer process, it should explain why the process was appropriate. In some cases, an experienced M&A adviser may provide sufficient market insight without a formal sale process.

Where the GP obtains a fairness opinion, the opinion should value the totality of the CV assets, not merely the lead investor’s stake. In addition, the valuer’s scope, preexisting relationships with the GP and fee incentives (including success-based fees) should be disclosed to the LPAC. LPs also should receive a summary of buyers approached, bids received and the rationale for the preferred bid, without identifying specific parties.

This approach is more flexible than the draft, which expected targeted processes across broad buyer sets, with fairness opinions and valuation reports as standard deliverables. GPs argued that bidder pools are not always broad and that a motivated buyer making a binding, fully diligenced offer may produce the best outcome through speed and lower execution risk. The final guidance accommodates this by requiring the GP to explain why any such process was appropriate, rather than prohibiting it. The guidance nonetheless continues to refer to price validation being “supported by an independent fairness opinion or similar,” so the expectation of independent support remains.

Election Period and Election Materials

The election period should generally be at least 20 clear business days from receipt of the final election pack, with full data room access, extendable for complex or multi-asset transactions. ILPA acknowledges that 20 clear business days may be sufficient for a less complex single-asset CV but inadequate for a complex MACV involving assets unknown to electing LPs. LPs that do not respond should be treated as sellers; LPs should never be forced to roll without their explicit prior written consent.

The 20-clear-business-day baseline replaces the draft’s 30-business-day minimum, which commentators criticised as departing from the 20-business-day market convention derived from U.S. tender offer rules. Commentators suggested earlier LP engagement as an alternative and, consistent with that suggestion, the final guidance encourages early LP-wide engagement and preliminary information before the formal election period. It also acknowledges that longer periods can make the reference date valuation stale and prompt lead investors to seek material adverse change protections, price adjustments or holdbacks.

A complete election pack, scaled to the size and complexity of the transaction, should include, at minimum:

  • A Q&A providing substantially the information contemplated by the ILPA Continuation Fund Disclosure Template.
  • A confidential information memorandum with key terms, cost allocations and estimated returns.
  • Valuation information compared against at least the most recent four quarterly reported valuations.
  • Price validation evidence. 
  • A tax summary of the sell/roll options.
  • A transaction pricing model.
  • CV transaction documents. 

Existing LPs should have access to the same data room as lead and syndicate investors, but data room access is not a substitute for a concise, plain-English summary memorandum.

The election agreement should not add material commercial terms beyond those disclosed or include broad GP conflict waivers in lieu of LPAC engagement. Waivers of known claims may be appropriate, but waivers of unknown claims generally are not, and any “no reliance” acknowledgement should be clearly justified.

Economics for Rolling LPs

The guidance sets out the following core economic principles for rolling LPs:

  • No overall increase in management fee liability, shown on a like-for-like basis across the totality of fund-level economics, over modelled hold-period scenarios applying good-faith reasonable assumptions.
  • No overall increase in the blended, risk-adjusted carried interest cost, modelled on the same basis.
  • No crystallisation of carried interest for rolling LPs, with any deviation fully explained.
  • No conditioning of roll elections on commitments to other GP-managed funds.
  • Substantially equivalent investor rights, protections and tax attributes, with side letter protections continuing to apply subject to necessary legal, tax, regulatory or policy updates.

Headline terms may differ from those of the existing fund, provided the GP’s comparative modelling demonstrates that the overall economic burden of fees and carry is generally no worse than if rolling LPs had remained invested in the assets through the existing fund. GPs may achieve this by offering rolling LPs the same terms as new CV investors, a “status quo” basis replicating existing fund economics or a combination of both.

This modelling-based test replaces the draft’s standard that rolling LPs be “no worse off” than if the CV had not occurred, with no increase evidenced in “absolute dollar amount” terms. Commentators said the draft approach was difficult to implement in practice for certain transactions, particularly non-buyout structures or funds that utilize a European waterfall. The final guidance retains the aspiration that rolling LPs should, “where possible,” be no worse off on the whole, but operationalises it through comparative modelling on like-for-like hold-period scenarios using good-faith assumptions. It also expressly recognises that, in credit, real estate and non-U.S. jurisdictions, resetting the waterfall to transaction value is longstanding market practice, provided the mechanics are fully explained.

Election Options

The GP sets the election options, which typically include selling, rolling (with or without a fresh commitment) or a combination of the two. The presence or absence of any particular option is not in itself indicative of an unfair process, but the GP should explain why the options offered are proportionate, cost-effective, asset-appropriate and operationally feasible. Fixed percentage sell/roll splits are acceptable, provided the GP explains why full optionality is not offered and how the splits were set. LPs should not be forced to sell solely because they cannot commit fresh capital and dilution mechanics should be disclosed and applied consistently.

The draft guidance had proposed a “remain in place” option, which allows an LP to maintain exposure to the assets being transferred by staying in the selling fund under existing economic terms, free choice of sell/roll percentages, no mandatory top-up and no scaling back of elections. Commentators argued that “remain in place” is rarely feasible for blocked investments and non-U.S., credit, real estate and infrastructure transactions. The final guidance largely accepts this analysis and, where follow-on funding is central to the CV thesis, permits the GP to require it as a condition to rolling provided LPs are not forced to sell.

Sponsor Alignment and Carried Interest

A significant and meaningful portion of crystallised carry (net of tax) attributable to selling LPs, together with returns on the GP’s sponsor commitment, should be rolled into the CV, excluding leavers and non-portfolio deal team members, with any amount not reinvested fully explained. The draft guidance called for reinvestment of all crystallised carry and sponsor-commitment returns relating to the transferred assets.

For existing funds with a European whole-of-fund waterfall, only crystallised carry attributable to the CV assets should be reinvested, recognising that requiring reinvestment of all crystallised carry could give the GP a disproportionate stake.

This is a softer position than the draft guidance, which called for reinvestment of all crystallised carry and sponsor-commitment returns relating to the transferred assets. The change responds to arguments that less-than-100% GP rollovers may reflect departed employees, taxes or legacy holdings that do not affect the alignment of the GP’s active team.

GPs should disclose the source of  its reinvestment. ILPA observes that where a GP funds its CV commitment through third-party sources, it may effectively “bank” its carry and de-risk its exposure while LPs are asked to extend theirs. The guidance frames the key test of alignment as whether the GP is better off with the CV than without it and expects the election pack to include a comparison of GP economics in “with-CV” and “without-CV” scenarios.

Co-Investors and the Existing Fund

The final guidance addresses areas not covered in similar depth in 2023. GPs should engage affected co-investors early and consistently with other LPs, and co-investors should receive no less than equivalent information. 

GPs should also evaluate and disclose the impact of the CV on the existing fund, including transaction cost sharing, the allocation of representations and warranties insurance (RWI) costs, lender consents and refinancing, LP and GP clawback, and the exit plan for remaining assets so that the existing fund does not become a neglected “stub fund.”

The guidance gives RWI a clear role in the CV process while setting firm expectations around its use. ILPA recognises that, by reducing buyer recourse against the selling fund and its LPs, RWI can facilitate a cleaner exit and allow sale proceeds to be distributed more quickly with less reliance on contractual holdbacks, and that rolling LPs also may benefit where they are named as beneficiaries. However, RWI is not a substitute for fair pricing, effective conflicts management, LPAC engagement, balanced disclosure or a fair election process.

Election materials should include a clear RWI summary covering the policy’s purpose, insured parties and beneficiaries, whether it was required by a lead investor, limit, retention, premium, cost allocation, key exclusions, known excluded matters and any residual recourse. The premium should be disclosed separately and allocated according to who benefits and the risk covered, and the GP should provide a cost-benefit analysis of RWI against a contractual holdback.

Practical Takeaways

GPs and LPs should consider the following steps when undertaking continuation vehicle transactions.

For GPs

  • Document the rationale early. GPs should be prepared to evidence the alternatives considered and why they chose a CV, ideally soft-testing the rationale with the LPAC before formal process steps.
  • Plan the timetable around 20 clear business days. Where the transaction is complex or a MACV, GPs should consider either a longer period or earlier preliminary disclosure.
  • Explain departures. Targeted processes, fixed sell/roll splits, the absence of a “remain in place” option, reset carry or partial carry reinvestment are all permissible, but each will need a clear explanation in the LPAC materials and election pack.
  • Prepare robust modelling. Fee and carry comparisons and “with-CV” and “without-CV” GP economics will be central to the election pack.
  • Consider insurance early. The RWI strategy should be developed alongside the transaction structure, diligence and disclosure process, with early broker engagement to identify the appropriate warranty package and any coverage issues before the transaction documents are settled.
  • Review election agreements. Broad conflict waivers, waivers of unknown claims, “no reliance” language and indemnities duplicating RWI cover are likely to attract challenge.

For LPs

  • Prepare internal processes. ILPA recommends adapted CV underwriting frameworks, expedited approval routes and red-flag legal review so that LPs can act within the election period.
  • Use the LPAC effectively. LPAC members should be prepared to engage and challenge the GP, request in-camera sessions and, where necessary, condition their waiver on remediation.
  • Negotiate protections at the outset. LPs should consider side letter provisions on minimum election periods, minimum information sharing (by reference to the Disclosure Template) and tax treatment, and should review co-investment documentation for treatment of CV exits.
  • Ensure legal review of election documents. LPs should receive legal sign-off  before signing election documents, even where an LP intends to sell.

Conclusion

ILPA’s final guidance reflects a pragmatic recalibration. By moving away from “comply or explain” rules toward principles-based best practice, ILPA has addressed many of the concerns raised regarding the draft guidance, particularly regarding the LPAC’s role, election periods, price discovery and rolling LP economics. However, the burden of demonstrating a fair, well-managed process remains squarely with the GP, and the expectations on disclosure and alignment remain substantial.

As CVs continue to evolve as a portfolio management tool, the guidance is likely to become an important reference point for LPACs, LPs and lead investors evaluating CV processes. GPs should review their CV playbooks, conflicts policies and template election documentation against the guidance, and LPs should consider how their internal processes and fund documentation can be adapted to engage effectively in CV transactions.

____________________

1 Jefferies, 2025 Global Secondary Market Review, 10 February 2026.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

BACK TO TOP