lev-os Analyzing Continuation Fund Structures
When To Use
- Evaluating a GP-led secondary transaction where portfolio assets roll into a new continuation vehicle (CV)
- Assessing LP election options (rollover, cash-out, partial liquidity) in a tender offer or stapled secondary
- Reviewing pricing methodology and fairness of the transfer valuation for existing LPs
- Analyzing new investor terms, economics, and structural protections in the CV
- Comparing continuation fund structures across multiple GP-led processes or benchmarking against market norms
Inputs To Gather
- Transaction documents: Term sheet, LP election notice, fairness opinion (if any), side letters
- Fund economics: Existing fund LPA terms (carry, hurdle, fee structure) vs. proposed CV terms
- Valuation materials: Third-party valuation report, comparable transaction data, GP's internal model and assumptions
- Portfolio company data: Financial statements, operating metrics, projected hold period, and exit assumptions for assets rolling into the CV
- LP base composition: Breakdown of existing LPs by type, commitment size, and likely election preference
- New capital terms: Lead secondary buyer economics, stapled primary commitment (if any), co-invest rights, and fee/carry reset provisions
- Conflicts disclosures: GP conflict-of-interest disclosures, LPAC approval status, and independent advisor engagement
Workflow
Map the transaction structure
- Identify whether the CV is single-asset, multi-asset, or strip/sleeve
- Diagram the LP election options: full rollover, full cash-out, partial mix, status quo (if available)
- Note any stapled commitment requirements for new or rolling LPs
- Flag whether the GP is crystallizing carry on the transfer and resetting economics in the CV
Analyze pricing and valuation
- Review the GP's proposed transfer price against the most recent NAV and any third-party valuation
- Assess valuation methodology (DCF, comparable transactions, public comps) and key assumptions (discount rate, exit multiple, growth rate, hold period)
- Compare implied pricing to recent GP-led secondary market benchmarks (typical discounts/premiums to NAV)
- Identify whether a fairness opinion was obtained and by whom; evaluate independence of the advisor
- [VERIFY] Confirm whether ILPA or jurisdiction-specific guidance on fairness opinions applies
Evaluate LP election mechanics
- Review election timeline, default election treatment, and minimum/maximum thresholds for the transaction to close
- Assess whether cash-out pricing is at the same valuation as rollover or at a discount
- Identify any differential treatment between large and small LPs or between rolling and cashing-out LPs
- Check for drag-along, tag-along, or most-favored-nation provisions affecting elections
Assess CV fund terms and economics
- Compare management fee (rate, base, step-downs) against the predecessor fund and market norms
- Analyze carried interest structure: rate, hurdle/preferred return, catch-up, whole-fund vs. deal-by-deal
- Review GP commitment to the CV (percentage and whether funded in cash or via carry rollover)
- Evaluate fund life, extension provisions, key-person triggers, and removal/no-fault divorce rights
- Identify governance provisions: LPAC composition, consent rights, reporting obligations
Review new investor terms
- Assess lead secondary buyer's economics: any fee discount, co-invest rights, board seats, or enhanced governance
- Identify side letter provisions that may create two-tier LP classes within the CV
- Review whether new investors receive different liquidity or exit rights vs. rolling LPs
Assess conflicts and process integrity
- Evaluate the GP's conflict management: Was an independent LPAC involved? Was a third-party advisor retained?
- Review disclosure adequacy regarding GP's economic incentives (carry crystallization, fee reset, NAV inflation risk)
- [VERIFY] Check compliance with SEC guidance on GP-led secondaries and any applicable fiduciary standards
Output
Produce a structured analysis report containing:
- Executive summary: Transaction type, key terms, and overall assessment
- Structure diagram: Visual or tabular representation of the CV structure, LP options, and capital flows
- Valuation assessment: Transfer price analysis with comparison to NAV, third-party valuation, and market benchmarks
- LP election analysis: Summary of options, timeline, default treatment, and any differential economics
- Terms comparison table: Side-by-side of predecessor fund vs. CV terms (fees, carry, governance, fund life)
- Conflicts and process review: Assessment of GP conflict management and fairness process
- Key risks and considerations: Material issues, red flags, or areas requiring further diligence
- [VERIFY] items: Consolidated list of jurisdiction- or regulation-dependent points requiring confirmation
Quality Checks
- Transfer price is benchmarked against at least two independent reference points (NAV, third-party valuation, market comps)
- All LP election options are described with clear economic consequences for each path
- CV terms are compared line-by-line against the predecessor fund LPA — no material term is omitted
- GP conflicts are explicitly identified, not just acknowledged generically
- Carry crystallization economics are quantified or flagged for quantification
- Any assumptions about hold period, exit multiple, or growth rate are labeled and sourced
- [VERIFY] markers are placed on all jurisdiction-specific regulatory requirements (SEC, FCA, MAS, etc.)
- Report does not present GP-provided projections as independent conclusions