CaseMark Structuring Gp Led Continuation Vehicles
Designs GP-led continuation fund structures with rollover mechanics, new money terms, and existing LP election options.
When To Use
- Structuring a single-asset or multi-asset continuation vehicle for a GP seeking to hold portfolio companies beyond the original fund's term
- Designing rollover/election mechanics for existing LPs choosing between liquidity, rollover, or status quo
- Modeling new-money LP economics (pricing, preferred return, fee structure) alongside rollover LP terms
- Evaluating GP economics across the legacy fund close-out and the continuation vehicle (carry crystallization, reset, or hybrid)
- Advising on LPAC/advisory committee approval processes and fairness opinion requirements
Inputs To Gather
- Portfolio company details: assets transferring, most recent valuations, holding period, value creation thesis for extended hold
- Legacy fund terms: original LPA carry waterfall, preferred return, management fee basis, fund term/extension status
- GP proposal: target continuation vehicle size, proposed transfer price, GP commitment/rollover percentage
- LP base composition: number of LPs, institutional vs. HNW mix, expected rollover vs. cash-out split, any side-letter commitments that carry over
- New-money term sheet: lead secondary buyer identity, proposed pricing (discount/premium to NAV), preferred return, fee structure, co-invest allocation
- Transaction advisors: placement agent, legal counsel, fairness opinion provider, independent valuation firm
- Timeline: target close date, LP election deadline, regulatory or LPAC approval milestones
Workflow
Map the legacy waterfall close-out
- Calculate accrued carry and preferred return at the proposed transfer price
- Determine whether carry crystallizes at transfer (full/partial) or rolls into the CV [VERIFY: confirm LPA language on deemed liquidation events]
- Model GP clawback exposure if transfer price later proves overstated
Design the LP election framework
- Define election options: (a) full cash-out at transfer price, (b) full rollover into CV on specified terms, (c) partial rollover/partial cash-out, (d) status quo (rare, only if legacy fund term permits)
- Set default election for non-responding LPs (typically cash-out) [VERIFY: default election must comply with LPA amendment provisions]
- Draft election form with clear disclosure of CV terms, fees, and carried interest reset
Structure CV economics for rollover LPs
- Rollover LPs typically receive: reduced or zero management fee for the CV term, carry rate equal to or below legacy fund rate, pari passu or senior position relative to new money on distributions
- Determine whether rollover LPs receive credit for legacy unreturned capital or enter at transfer-price basis
- Address side-letter MFN provisions that may carry over [VERIFY: review each side letter for CV transfer language]
Structure CV economics for new-money LPs
- Standard terms: 1.0%–1.5% management fee on committed capital, 10%–15% carried interest over a 6%–8% preferred return
- Model waterfall: return of capital first, then preferred return, then GP catch-up, then carry split
- Evaluate whether new money receives a discount to NAV and the implied IRR at base/upside/downside scenarios
Set GP economics in the CV
- GP commitment: typically 2%–5% of CV; confirm whether funded from crystallized carry or new cash
- Carry structure: reset carry on full CV pool vs. tiered carry (lower on rollover capital, standard on new money)
- Management fee: often blended rate reflecting reduced fee on rollover capital and standard fee on new money
Address governance and conflict management
- LPAC approval process: disclose conflicts (GP on both sides of transaction), obtain formal consent or waiver [VERIFY: ILPA guidance on GP-led conflicts]
- Fairness opinion: independent valuation of assets at transfer price; identify qualified provider
- Information rights: ensure all LPs receive same data room access, financial models, and Q&A opportunity before election deadline
- Stapled transaction analysis: if GP is raising a new flagship fund concurrently, address perception of stapled commitments
Model economics and scenario analysis
- Build a returns waterfall model showing distributions to rollover LPs, new-money LPs, and GP under base/upside/downside exit assumptions
- Sensitivity analysis on exit timing (2–4 year hold), exit multiple, and leverage
- Compare GP total economics (legacy crystallized carry + CV carry) against a straight sale alternative
Output
- CV Structure Memo: executive summary of vehicle design, transfer pricing rationale, and key commercial terms
- LP Election Summary: table showing election options with fee/carry/preference comparison across each option
- Waterfall Model Outputs: projected distributions to each LP class and GP under three scenarios, including IRR and MOIC
- Conflict Disclosure Package: summary of GP conflicts, LPAC consent requirements, and fairness opinion scope
- Term Sheet / Side-by-Side: comparison of legacy fund terms vs. CV terms for rollover LPs and new-money terms
Quality Checks
- Transfer price is supported by independent valuation and consistent with recent comparable transactions
- Carry crystallization treatment aligns with LPA language — flag any ambiguity with [VERIFY]
- Rollover LP terms are at least as favorable as new-money terms on a risk-adjusted basis (or deviation is clearly disclosed and justified)
- Election timeline provides LPs adequate review period (ILPA recommends minimum 20 business days) [VERIFY: check specific LPA notice requirements]
- GP total economics (legacy + CV) are transparently modeled and disclosed to LPAC
- All side-letter provisions reviewed for transfer/successor fund applicability
- Tax structuring considerations addressed: blocker entities, UBTI, withholding for non-US LPs [VERIFY: jurisdiction-specific tax treatment]