SELL TO ROLL Capital retention in the continuation vehicle ecosystem
Supported by:
P R I VAT E E Q U I T Y W I R E
BALANCING INTERESTS
KEY TAKEAWAYS
Al Blanco is Managing Director and Co-Head of Private Equity Services at SS&C Technologies. He says a clear set of metrics can help justify a CV. “Where an asset has already appreciated three to five times, for example, the manager’s thesis to the LPs is that there are more multiples to come. The thesis must resonate with investors, because you’re effectively asking them to delay realizing their gain against potential future gains.”
Liquidity remains the biggest driver of continuation vehicles The LP and GP experience diverges considerably The use of AI to improve process and rationale is proliferating
As continuation vehicles (CV) become an increasingly popular exit route, many GPs are looking for ways to retain and recycle the capital from those transactions. The data gathered for our annual flagship secondaries research suggests liquidity generation for LPs is the biggest use case (see Figure 1). If most LPs were choosing to roll into new CVs, GPs would secure that capital, but up to 90% of LPs currently choose the sell option, according to ILPA’s Director of Industry Affairs Brian Hoehn. Hoehn suggests the high proportion of LPs looking to sell isn’t an endorsement of the pricing process, highlighting opportunities to further enhance the LP experience. LPs are increasingly focused on two areas: understanding the rationale behind the CV and having sufficient time to evaluate the opportunity.
Figure 1 Top use cases of continuation vehicles
The metrics used to justify continued investment are typical of any M&A transaction – an overall view of the industry or market segment the company competes in, the go-forward projection on IRR, multiple of capital and cash flow, and then a drill-down into why that particular investment will overachieve and produce an abovemarket return. CVs naturally involve multiple stakeholder interests that must be carefully balanced. Conflicts around valuations (35%), balancing LP interests (27%) and fee structure conflicts (19%) are the top challenges GPs face. Blanco says GPs should treat the CV process as though they’re raising a new fund. “Start with going to your biggest investors to gauge their interest, while at the same time working with the secondary purchaser who’ll take up the capacity. “Work through any economic breaks, fee breaks or reporting items going into a side letter or updated term sheet and finally execute a new subscription document with LP and GP counsel.
Figure 2 Top challenges in the continuation vehicle process
5% 35%
13%
27%
42%
19%
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26% LP liquidity generation
Valuation conflicts
Trophy asset retention
Balancing of LP interests
Access to trophy assets
Fee structure conflicts
Problem asset rollover Carry reset PRIVATE EQUITY WIRE RAPID READ | JUNE 2026
“Timing must be controlled so everything happens on the same day – the transaction in the fund, the launch of the continuation vehicle, and the distributions and capital calls on either side. There is also an expectation the GP will own a larger stake in the CV than in a normal fund, usually around 2%, to demonstrate commitment.” There are other complexities, too. Blanco says the final amount available to purchase in a CV can be a moving target, particularly when firms keep updating the ratio of sellers late in the process or need to collect bespoke fees from the LPs. This is part of managing existing LPs alongside large secondaries purchasers in the market. As for fee structures, Blanco says the waterfall calculations in CVs typically become return based. “The GP gets one level of carry if the investment returns over 6%, then more
When investors have sufficient information and time to evaluate the opportunity, firms are better positioned to retain capital within their ecosystem. According to Blanco, AI is playing a growing role for GPs to manage the LP experience. Our data reflects this: 46% of firms say they use AI as a supporter of basic tasks, another 29% use it as an informer of decisions and 7% say it’s an executor of decisions (see Figure 3). Only 18% of firms say AI plays no role at all at this stage, a sizeable drop from 54% last year. Blanco says: “AI is being leveraged heavily for document reading – putting a term sheet, investment document or LPA into a homegrown AI solution built on one of the larger LLMs to pull out the important pieces, so you don’t have to read the full document. That’s where I’m seeing a lot of
Figure 3 Use of AI in the continuation vehicle process
29%
46%
7%
18%
None at all Marginal – supporter of basic tasks Supplemental – informer of decisions Integral – executor of decisions
above 9.5%. The multi-tiered calculation is tied directly to continued performance, because that’s exactly what was sold in the initial thesis.” Clear communication, transparency and a well-structured process help build confidence among all participants. If the rationale is data-driven and the valuations and performance incentives clearly outlined, much of the complexity can be ironed out.
BUILDING CLARITY That said, a major frustration outlined by Hoehn is that even if the deal is compelling and clearly outlined, the process is often so rushed that LPs have little time to consider the deal and undergo their own internal due diligence and approval procedures. As a result, many choose to sell simply because they cannot meet their due diligence requirements in time.
usage across our clients and secondary purchasers, and it’s saving real time. They’re looking at a lot of deals and getting through these large documents quickly is very important.” “The analysis of how well actual returns matched the original thesis is going to be very important, and that’s probably where you put an AI overlay on top. That analysis can highlight how the asset performed after it went into the continuation vehicle, and the GPs can chain this information together to show an LP their entire return experience with the firm. We’re seeing a lot of clients come back and ask us to put exactly that together.” Armed with this analysis, Blanco says CVs are being timed strategically by firms – coinciding with fundraising for their flagship vehicles. If the sell option is taken, LPs are reminded of the strong performance and directed to the flagship fund for allocations – thereby retaining capital within the ecosystem. The efficiency of the process and the clarity provided by GPs at various points can secure positive outcomes.
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