Continuation Vehicles Under Scrutiny: Fairness Opinions and GP’s Balancing Act

In 2025, continuation vehicle transactions (CVs) constituted approximately 87% of GP-led secondary market activity, according to HUB International Limited. CVs are becoming increasingly popular, allowing fund sponsors to extend holding periods for assets that may benefit from additional capital or maturation in a fund.

CVs are structurally fraught, however, because they inherently entail conflicts of interest. Because the sponsor, through affiliated funds, acts as both buyer and seller, it has an incentive to represent information regarding the valuation, timing and management of the CV to investors in a way that is advantageous to the sponsor. As such, it is common to engage an investment bank to market the transaction in a broad auction and an independent, third-party financial adviser to issue an opinion regarding fairness, from a financial point of view, on the price of the assets being transferred from one of the sponsor’s funds to another.

These opinions often differ from typical fairness opinions routinely received in the sale of a public company in several important ways: (1) the opinion provider may not have access to management of the portfolio company(ies) being sold from one fund to another; (2) the financial projections of the portfolio company(ies) may not have been created by their management; (3) because some limited partner investors may “roll” their equity investment into the continuation fund, the entirety of a given portfolio company may not be sold for cash; (4) the opinion provider may not know the amount of consideration to be paid or received by any particular fund and thus may be asked to opine on the fairness of the equity or enterprise value to be used in the CV transaction (which may be the result of an auction process led by a different investment bank); and (5) the GP may decide whether to pursue the CV transaction earlier in the process than a public company board typically would, and therefore request the opinion earlier in the CV transaction process, so drafts of the transaction agreement may not be available when the opinion is requested. In that case, the opinion provider must rely on only a term sheet or letter of intent to outline the structure and the terms of the transaction.

Since the U.S. Court of Appeals for the Fifth Circuit’s 2024 decision in National Association of Private Fund Managers v. SEC, which vacated the SEC’s Private Fund Adviser Rule, GPs operated under a principles-based standard rather than prescriptive governance requirements. Although the Investment Advisers Act of 1940 still imposes a fiduciary duty of loyalty requiring full and fair disclosure of material conflicts of interest, it does not prescribe specific procedures for managing those conflicts. In this environment, obtaining a fairness opinion for a CV has become standard practice, and, as a practical matter, nearly essential to promoting transparency and reducing litigation risk.

Because the procedural structure of CVs is largely at the sponsor’s discretion, these transactions can generate legal friction. A recent case that brought these issues to light is the 2025 complaint filed by Abu Dhabi Investment Council Company PJSC (ADIC) in the Delaware Court of Chancery against the Energy & Minerals Group (EMG) following EMG’s plan to transfer 30% of its Ascent Resources position into a continuation vehicle. The transaction ostensibly adhered to procedural standards: EMG obtained a fairness opinion from a financial adviser regarding the purchase price, solicited approval from EMG’s limited partner advisory committee (LPAC), and offered existing investors “rollover” and “cash out” options. Nevertheless, ADIC alleged that EMG deliberately misrepresented aspects of the transaction and employed coercive tactics to obtain LPAC approval.

The complaint, which sought a court-issued injunction in aid of arbitration before the CV could close, raised several concerns: that LPAC members were given inadequate notice and information before being prompted to vote; that the LPAC’s requests to postpone the vote and hold a session without the sponsor present were ignored; that selling LPs and prospective new LPs in the continuation fund received different information; that requests for consideration of alternative transactions (such as a public offering or merger) were ignored; and that EMG provided inaccurate information on Ascent Resources to its third-party financial adviser, resulting in the asset being undervalued in the fairness opinion.

The ADIC v. EMG case prompted the Institutional Limited Partners Association (ILPA) to accelerate its self-regulatory framework through a January 2026 Continuation Fund Disclosure Template and June 2026 Continuation Vehicle Guidance, which seek to establish more rigorous governance expectations for CV participants. These publications build upon ILPA’s 2023 guidance, which stipulated that the CV process should be designed to maximize value for existing LPs in the selling fund and that rolling LPs should be no worse off in the CV than they were in the previous fund. The 2023 guidance, in particular, articulated ILPA’s expectation that GPs demonstrate that

1. The transaction serves the best interests of existing LPs;
2. The CV maximizes value compared to alternatives considered (e.g., a broad auction) and is thus a deliberate choice; and
3. Rolling LPs are no worse off.

Additionally, the June 2026 proposal outlines four strategic objectives: improved conflict management, stronger evidence of commercial rationale for pursuing a CV over alternative exit paths, fair and defensible pricing determined through market-clearing mechanisms, and robust process integrity throughout the transaction. In pursuit of these goals, ILPA expanded its recommendations for specific checks and balances on sponsor interests throughout the CV process. Although ILPA has no binding legal authority, its guidelines can function as a practical standard shaping LP and LPAC expectations for GP conduct.

Integrity is central to the relationship between investors and sponsors of private equity funds. Given the prevalence of CVs in the secondary market, together with the conflicts of interest discussed above, market participants are paying close attention to the governance standards applied to these transactions. ADIC v. EMG illustrates how procedural shortcomings can give rise to significant litigation risk where inherent conflicts of interest are present. In the current regulatory environment, investors and GPs should not only follow the guidance described herein and by applicable regulatory bodies but also select a fairness opinion provider with great care, ensuring that such provider is independent and has substantial experience rendering opinions in CV transactions. A qualified, independent adviser can help promote fair, transparent processes in which the interests of all parties are given appropriate weight at each stage of the transaction lifecycle.

McGuireWoods continues to monitor developments in corporate law. For questions, contact the authors or a member of the Securities & Shareholder Litigation Practice Area.

The authors thank case assistant Elspeth Campbell for her assistance in preparing this legal alert. She is not licensed to practice law.