lev-os Analyzing Continuation Vehicles
Evaluates GP-led continuation fund structures, assessing portfolio asset transfers, existing LP election options, new investor economics, and GP incentive realignment to determine whether the transaction is fairly structured and appropriately priced.
When To Use
- A GP proposes transferring one or more portfolio assets from a legacy fund into a new continuation vehicle
- Existing LPs must decide between rolling over, selling at a stated NAV, or a hybrid election
- A secondary buyer or lead investor is evaluating a stapled commitment alongside the CV
- An LPAC or advisory committee needs an independent assessment of GP conflicts and pricing fairness
- Evaluating whether a CV is a genuine value-creation play or primarily a fee/carry reset for the GP
Inputs To Gather
- Transaction documents: term sheet, LPA of the continuation vehicle, election notice to existing LPs, and any fairness opinion or third-party valuation report
- Portfolio company data: historical financials (3–5 years), current operating metrics, management projections, and prior entry valuation
- Legacy fund details: original fund LPA (especially carry waterfall, key-person, and no-fault removal provisions), current fund NAV, remaining fund life, and existing fee/carry terms
- New CV economics: management fee rate and basis, carried interest percentage and hurdle rate, GP commitment and rollover amount, preferred return structure, and any catch-up provisions
- Third-party valuation: independent valuation report or fairness opinion, methodology used (DCF, comparable transactions, public comps), and discount/premium to prior marks
- LP election terms: rollover terms, cash-out pricing, election deadline, and any differential economics between rolling and new LPs
- Conflicts disclosure: GP's economic interest in both legacy fund and CV, stapled commitments, advisory fee offsets, and any side letters with preferential terms
Workflow
Map the transaction structure — Diagram the asset flow from legacy fund to CV, identify all parties (GP, existing LPs, lead secondary buyer, co-investors), and confirm the legal entity structure. Flag any unusual structural features (e.g., blocker entities, parallel vehicles, feeder structures).
Assess valuation and pricing — Compare the stated transfer price against the most recent GP mark, independent valuation, and your own analysis using DCF, comparable transactions, and public-market multiples. Calculate implied entry multiple for new investors versus the effective exit multiple for cashing-out LPs. Note any discount or premium embedded in the pricing. [VERIFY] Whether a fairness opinion was obtained from a truly independent advisor.
Analyze GP economics and conflicts — Compare management fees, carry rates, hurdle rates, and GP commitment between the legacy fund and the CV. Calculate the GP's incremental economics from the transaction (fee restart, carry crystallization on legacy fund, new carry on CV). Identify whether the GP is rolling 100% of its legacy carry or taking partial cash. Evaluate whether the GP has economic incentives that diverge from LP interests.
Evaluate LP election options — Map the choices available to existing LPs (full rollover, full cash-out, partial each). Assess whether rolling LPs receive economics equivalent to new investors or are disadvantaged. Review election timing and whether LPs have adequate information and time to decide. Check for any most-favored-nation provisions or side-letter implications.
Examine the value-creation thesis — Evaluate the GP's stated rationale for extending hold period. Assess whether the portfolio assets genuinely require additional time and capital, or whether the thesis is largely exhausted. Review the GP's proposed business plan, add-on acquisition pipeline, and exit timeline for the CV.
Review governance and protections — Analyze LPAC composition and approval requirements in the CV. Check for LP-favorable provisions: no-fault removal, key-person triggers, fee/carry step-downs, and information rights. Compare governance terms against market standards for GP-led secondaries. [VERIFY] Whether LPAC consent or LP advisory vote was obtained for the transaction.
Benchmark against market — Compare CV terms (fees, carry, hurdle, GP commit, fund life) against recent GP-led secondary transactions. Reference industry data from Evercore, Lazard, Jefferies, or similar advisors on market pricing and terms trends.
Output
Produce an Analysis Report structured as follows:
- Executive Summary: Transaction overview, key findings, and overall assessment (favorable / neutral / unfavorable for existing LPs)
- Transaction Structure: Entity diagram, asset description, parties, and capital flows
- Valuation Assessment: Transfer pricing analysis with supporting multiples, DCF, and comps; comparison to independent valuation
- GP Economics & Conflicts: Side-by-side fee/carry comparison (legacy vs. CV), incremental GP economics, and conflict assessment
- LP Election Analysis: Option comparison table showing expected returns under each election scenario (rollover vs. cash-out) with sensitivity analysis on exit timing and multiples
- Value-Creation Assessment: Evaluation of GP's forward business plan credibility and remaining upside
- Governance & Terms Review: Key protective provisions with market-standard benchmarking
- Risk Factors: Concentration risk, illiquidity extension, GP alignment concerns, and market/execution risks
- Recommendation Matrix: Decision framework for LPs based on liquidity needs, conviction in GP thesis, and portfolio allocation considerations
Quality Checks
- Verify that the transfer valuation has been independently assessed — not solely GP-marked
- Confirm that GP carry crystallization on the legacy fund is properly accounted for and disclosed
- Ensure LP election analysis models at least three scenarios (base, upside, downside) with explicit assumptions
- Check that fee and carry comparisons are on an apples-to-apples basis (fee basis as committed vs. invested capital, European vs. American carry waterfall)
- Validate that governance protections in the CV LPA are at least as strong as market norms for GP-led transactions
- Flag any terms where rolling LPs receive worse economics than new investors entering the CV
- Mark all jurisdiction-specific regulatory requirements (e.g., ERISA plan constraints, EU AIFMD reporting) with [VERIFY]
- Confirm that any stapled commitment from the lead buyer is disclosed and its impact on pricing independence is assessed