Continuation funds and GP-led secondaries: the file you will be asked to produce

Break a continuation fund down to its mechanics and each limb of the SYSC 10 conflicts test applies at the same time. The manager stands to gain financially at one set of clients’ expense, because the transfer price that suits the buying vehicle is, by construction, the price that is worse for the selling fund. It has an interest distinct from its clients’, because it will keep charging fees and earning carry on the rolled asset and may crystallise carry on the sale. And it has reason to favour one client over another, because rolling investors, selling investors and new third-party capital want opposite things from the price. The same transaction is conflicted on its structure and on its price together.

One feature of the duty bears on this directly. For a full-scope manager the conflicts obligation runs to the fund’s underlying investors, not only to the fund as the manager’s client. So the fairness the FCA expects on a continuation fund is fairness between the rolling and the selling investors themselves, which is what the LPAC process and an independent price exist to protect.

The FCA has already said as much. Its March 2025 private market valuations review listed asset transfers as one of seven conflict situations firms are expected to identify and manage, noting that the manager’s valuation sets the transfer price in a way that affects buyers, sellers and remaining investors. The regulator then said its next multi-firm review would look at conflicts of interest in private markets, and the firms it flagged as most exposed are the ones doing this kind of deal: those running continuation funds and GP-led secondaries, those with co-investment programmes, those with several intersecting business lines. A continuation fund is squarely within both reviews the FCA is running.

Three audiences will ask for much the same thing, so the file is worth building once and building well. A file built for the toughest audience covers the others.

The regulator asks in a conflicts review or routine supervision, and its test is the SYSC 10 test: were the conflicts identified, were they managed rather than merely disclosed, and can that be evidenced. The limited partners and their advisory committee ask in the context of governance and, more and more, of operational due diligence on the next fundraise; their test is fairness: were rolling and selling investors treated even-handedly, did they get enough information and enough time, did the GP take more than it should. The secondary buyer’s counsel and the deal’s own advisers ask about the transaction itself, and their test is defensibility: whether the process could be defended if an investor or counterparty pushed back. The tests differ, but the evidence that answers one largely answers the others. A file built to the regulator’s evidentiary standard covers the commercial audiences too.

The pack runs as follows. Treat it as the contents page of the continuation fund file — one the firm can hand over complete at close rather than reconstruct later.

The continuation fund evidence pack

1. A conflicts assessment mapped to SYSC 10. A written assessment naming each conflict the transaction creates, mapping it to the relevant limb of SYSC 10.1.4R, and stating the specific mitigation for each, with the conflicted individuals named and their recusals recorded. This is the document the FCA’s conflicts review is designed to test, and the one most firms have prepared least, because the deal team is focused on closing the transaction rather than on documenting how its conflicts were handled.
2. The price-setting and valuation record. Since the transfer price is where the conflict concentrates, the file has to show how it was set and how it was tested. That means the underlying valuation, prepared to the standard set out in the FCA’s valuation review and the firm’s own valuation policy, plus a demonstration that the price was validated independently. In current market practice that validation is a fairness opinion from an independent adviser, and ILPA’s guidance treats such an opinion as beneficial to LPs in these transactions. Where the price was set through a competitive or market-tested process, in place of or alongside a fairness opinion, the file should document that process and its outcome. Where it was not market-tested, the file should explain why the chosen validation was enough.
3. The LPAC engagement record. ILPA’s guidance here is specific, and the file should track it. Every conflict tied to the transaction should be mitigated by the GP and approved by the advisory committee, and the LPA should not carry a presumptive waiver of those conflicts. The LPAC should have reviewed the selection of the independent adviser, including its compensation terms, and should have reviewed the terms of the entire deal no less than ten business days before signing. So the file should hold the committee materials, the dates, the conflicts the committee was asked to approve, and its approval, enough to show the engagement was early, informed and genuine rather than a late-stage formality.
4. The LP election mechanics. This is where fairness to investors is won or lost, and where the paperwork is most often thin. ILPA’s guidance sets clear parameters. Investors should get a status quo option, meaning the ability to roll on the same headline economic terms as the existing fund: no increase in the management fee basis or rate, no increase in the carried interest rate, no decrease in the preferred return hurdle, and no crystallisation of carry for rolling investors. Investors should have at least 30 calendar days, or 20 business days, to evaluate the transaction and make their election. And the default for an investor who does not decide in time should be a cash-out at their share of the sale proceeds, as if the asset had been sold to a third party. The file should show that every investor received the same information, that the status quo option was genuinely offered, that the election window met the standard, and that the default was applied consistently.
5. The GP economics disclosure. Investors and the regulator will want to see what the GP gets out of the transaction, since that is what drives the conflict. The file should disclose whether carried interest crystallised on the sale and how much, how much the GP rolled into the continuation vehicle, and the GP’s own commitment to the new vehicle. Where carry received from cashing-out investors was not fully rolled into the continuation fund, ILPA’s guidance expects a detailed explanation of why the GP chose not to roll all of it. A continuation fund in which the GP takes carry off the table while asking investors to roll, with no clear account of why, is a common trigger for LP complaints and supervisory questions.
6. The transaction cost allocation. The costs of running a GP-led (advisers, legal, the fairness opinion) can be large, and who carries them is itself a conflict. The file should disclose the methodology for allocating transaction fees and expenses, and should show the GP sharing a portion of those costs where it benefits from additional fee revenue or a stapled commitment to a new fund. Loading all costs on the funds while the GP keeps the upside is exactly what an LP audit examines.
7. The investor communications and consistency check. The disclosure pack sent to investors should be in the file, and it should reconcile with everything else: the valuation that set the price should be the valuation in the marks, the track record presented should split realised from unrealised on the same basis as the firm’s marketing standard, and the account of the GP’s economics should match the economics disclosure above. Discrepancies between deal disclosures and other reporting are a known area of supervisory focus.
8. The governance sign-off. Last, the file should show who approved the transaction inside the firm, on what information, and with which conflicted individuals recused. The investment committee or board minute that signs off a continuation fund should read like the valuation committee minute the FCA wanted to see in its review: it records the reasoning, the challenge and how each was resolved, rather than only stating the outcome.

In August 2023 the US Securities and Exchange Commission adopted an adviser-led secondaries rule, Rule 211(h)(2)-2. It would have required registered private fund advisers to obtain a fairness opinion or a valuation opinion in connection with any GP-led secondary, and to disclose any material business relationship with the provider of that opinion. In June 2024 the US Court of Appeals for the Fifth Circuit vacated the SEC’s private fund adviser rules in their entirety, in National Association of Private Fund Managers v SEC, holding that the SEC had exceeded its statutory authority. As a matter of law, the adviser-led secondaries rule is gone.

The vacated rule removed a US mandate but not the underlying standard. The fairness opinion was common market practice before the SEC acted, ILPA’s guidance already treats it as beneficial, sophisticated LPs already expect it, and the FCA’s asset-transfer conflict finding pushes UK managers toward the same evidence from a different direction. Vacating the SEC rule removed one US legal mandate. It left the LP expectation, the ILPA standard, and the SYSC 10 obligation to manage the conflict and evidence that management. Many UK managers are SEC-registered or raise from US investors in any case, and for them the practical position has not changed. The fairness opinion and the governance pack are the evidence base the FCA’s conflicts framework, the LPAC, and the next fundraise’s due diligence each require on their own account, whether or not any single overseas rule survives a court challenge.

In practice the failure is usually in the governance record, not the deal itself. A firm can run a defensible process — an independent price, a real election window, an engaged LPAC — and still be unable to produce, a year later, the assessment that maps each conflict to SYSC 10, the dated LPAC materials, or the election records showing the cash-out default was applied the same way for everyone. The process was sound; nobody assembled the evidence of it while the detail was still to hand. On a GP-led, closing that gap while the deal is live costs a fraction of reconstructing it during the next raise, once the people who ran the process have moved on.

This insight is provided for general informational purposes only and doesn’t constitute legal, investment, or regulatory advice.