By Brendan Gallen
For years, fund end-of-life followed a familiar script: realize the remaining assets, distribute the proceeds, and commence wind-down. That script is now being rewritten.
The private equity industry has entered a period of heightened structural adjustment. With an estimated 32,000 unsold portfolio companies representing approximately $3.8 trillion in value, and distributions as a percentage of NAV trailing historical norms by roughly fifteen per cent for four years on the trot, how funds navigate their end-of-life phase has moved from administrative afterthought to strategic imperative. How a sponsor manages the final years of a fund’s life is no longer merely operational; it is a signal of institutional credibility, fiduciary discipline, and commercial sophistication.
The end-of-life toolkit
The strategic case for early planning rests on a straightforward observation: the range of credible options available to a fund manager narrows considerably as a fund approaches formal maturity. A sponsor that begins scenario planning at year five or six retains meaningful flexibility — the ability to pursue a competitive sale process, structure a continuation vehicle on favourable terms, facilitate LP-led secondary transactions, or negotiate fund extensions with genuine optionality for investors.
A manager that defers serious consideration until year nine or ten finds itself operating under compounding constraints. Extended hold periods increase concentration risk, heighten sensitivity to valuation shifts, and test the patience of limited partners whose own liquidity planning depends on timely distributions. They may also complicate fundraising, as prospective investors scrutinise older vintages unable to return capital on expected timetables. Proactive planning preserves optionality: delay forecloses it.
Against this backdrop, continuation vehicles have emerged as the most significant innovation in the end-of-life toolkit. The GP-led secondary market reached approximately $115 billion in volume in 2025, surpassing total secondary market volume in 2023. At the same time, continuation vehicles have taken a more expanded presence in the market, representing approximately fifteen per cent of total sponsor-backed exit value in 2025, up from eight per cent in 2021, with an overwhelming majority of the top global buyout sponsors accessing this market. What was once an occasional workaround has become a mainstream, institutionally endorsed strategy for managing the transition between fund generations.
Yet the very features that make continuation vehicles attractive also give rise to their most significant structural risk. The same sponsor effectively acts on both sides of the transaction, managing the selling fund and the buying vehicle. The sponsor owes fiduciary duties to both legacy investors who may cash out and incoming investors who commit fresh capital, while holding its own economic interest in carried interest and management fees on the successor vehicle.
Important safeguards
As the CFA Institute has observed, the manager owes fiduciary duties to both buyers and sellers, with its own financial incentives potentially becoming misaligned with the interests of the legacy fund, the continuation fund, and their respective investors. Under asymmetric information, GPs may have incentives to distort valuations, incentives that diminish when the proportion of rolling LPs is higher and when the GP faces stronger fundraising prospects. An estimated eighty to ninety per cent of legacy investors choose to cash out, underscoring the importance of ensuring that valuation and process integrity are beyond reproach for those who elect to roll forward.
Mitigating these conflicts then requires safeguards that are substantive rather than merely procedural. The SEC adopted final rules in August 2023 requiring registered private fund advisers to obtain a fairness or valuation opinion in adviser-led secondary transactions, together with disclosure of material business relationships with the opinion provider.
Many sponsors had already adopted fairness opinion practice prior to the rules coming into force, recognising that independent validation of price is essential to transaction credibility, not merely regulatory compliance. The market test of value is equally important: in a GP-led transaction, particularly a single-asset deal, a robust sales process must establish that the transfer price reflects genuine market conditions. As practitioners have noted, one cannot afford to rush or take LPs for granted; sufficient time and information must be provided for investors to make an informed decision.
Not merely a formality
It is here that the distinction between governance as formality and governance as genuine protective mechanism becomes critical. The Institutional Limited Partners Association published guidance in May 2023 stipulating that all conflicts associated with continuation funds should be mitigated by the GP and approved by the LPAC. The committee should be consulted early on the rationale for the proposed transaction, should review the GP’s selection of adviser, and should carry out a review of terms no fewer than ten business days prior to signing.
All existing LPs should have parity of information with new investors, and should be given at least thirty calendar days or twenty business days to evaluate a transaction. In 2026, ILPA released a Continuation Fund Disclosure Template to standardise LP information. These are not bureaucratic formalities; they are structural interventions designed to counterbalance the informational and economic advantages that the sponsor holds in a transaction it has originated, structured, and will continue to manage. With increasing criticism and scrutiny of conflicts in this space, stricter adherence to these interventions is likely required.
The GP’s own economic alignment is a further dimension of meaningful governance. ILPA recommends that the GP roll one hundred per cent of carried interest into the continuation fund, explaining any departure and providing alternative alignment incentives. Market data indicates that GPs rolled one hundred per cent or more of realised carry proceeds in eighty-eight per cent of deals, with average GP commitment at approximately nine per cent of total commitments.
A genuine opportunity
The “status quo” option, whereby rolling LPs receive the same headline economic terms as the existing fund, safeguards against the erosion of investor protections through the transition. Each mechanism serves a specific function: ensuring that sponsor incentives remain aligned with those of investors, and that informational asymmetry is addressed through transparency rather than obscured by process.
For GPs, the implication is that continuation vehicle processes must be approached as fully fledged sell-side transactions with a conflicts overlay and not internal housekeeping exercises. The election offered to LPs should be treated as a product: clearly presented, thoroughly documented, and supported by independent validation of value.
For LPs and their advisers, the task is to engage with LPAC processes and disclosure materials as a genuine opportunity to scrutinise economic rationale, independence of valuation, and alignment of sponsor incentives. Where these protections are treated as substantive, by both sides, they function as effective mechanisms for managing what is, by its nature, a significant structural conflict. Where they are treated as formalities, they offer little more than a veneer of process over a transaction whose integrity depends on the good faith of its architect.
Conclusion
The private equity industry stands at a juncture where end-of-life activity will only grow in scale and sophistication. With secondary market volumes approaching $275 billion and the exit overhang continuing to build, pressure on sponsors to demonstrate credible, well-governed liquidity solutions will intensify. Those who plan early, invest in robust processes, and treat investor protections as genuine rather than performative will distinguish themselves in a market where institutional trust is scarce and increasingly determinative of competitive advantage.
A Partner at international law firm Reed Smith,
