Continuation Vehicles Are Here to Stay: Is Your Fund Ready?

Continuation funds have become a strategic tool for private equity managers seeking more time and flexibility to manage portfolio assets. These vehicles are typically established near the end of a fund’s term, allowing select assets to be rolled into a new fund, often with a mix of new and existing investors. Limited partners can choose to cash out, if sufficient liquidity is available, or roll their interest forward. The rise in continuation fund activity reflects several converging trends:

• GPs want more time to realize value from high-performing assets. 
• LPs seek liquidity and optionality. 
• The secondaries market has matured, offering capital and price discovery. 
• Managers aim to avoid forced sales at fund maturity. 

Together, these factors are driving increased adoption—and with it, a greater need for precise and scalable continuation fund administration.

Tracking Rolled-over Carry and LP Interests 

One of the most complex areas of continuation fund administration is tracking carry and investor elections. GPs must: 

• Record which LPs opt to roll or redeem, and on what terms. 
• Map rolled-over capital to the new structure’s share classes. 
• Transfer carry properly, including tracking unrealized and restructured interests and adhering to any side letters in place.
• Reconcile capital account balances to reflect past activity and new allocations. 

Each of these actions must be precise. Inaccurate entries can lead to investor disputes or audit delays. 

Reporting and Audit Implications 

Continuation funds trigger important financial, tax, and audit considerations. 

Financial Reporting 

• Close out financials in the original fund to reflect the asset sale. 
• Open books for the continuation vehicle, including starting NAV and investor balances. 
• Disclose rollover elections, pricing methodology, and revised waterfall terms. 

Tax Reporting 

• Some LPs may trigger gains on exit; others may defer recognition by rolling over. 
• The fund must allocate tax basis, unrealized gains, and past distributions accurately. 
• Coordinating filings across jurisdictions is often required. 

Audit Considerations 

• Auditors will review how asset fair value was determined. 
• They’ll validate LP elections, fund governance, and carry recalculations. 
• Any delays in documentation or reporting can slow audit sign-off. 

Planning ahead smooths these transitions and supports investor confidence in your continuation fund administration.

Managing Multiple Vintages in a Single Structure 

Continuation funds often involve assets from several fund vintages. That introduces new layers of complexity. GPs can manage this by: 

• Segmenting share classes to preserve separate economics. 
• Tailoring waterfalls per asset group or vintage. 
• Tracking contributions, returns, and fees separately for each vintage. 
• Creating a matrix of LP elections to handle varied participation by fund. 
• Aligning audit and tax timelines to reflect each asset group’s transition date. 

With clean structuring and clear communication, it’s possible to combine multiple vintages while maintaining transparency and governance. 

Best Practices for Continuation Fund Administration 

To avoid last-minute issues, GPs should: 

• Start early: Build the transition into your fund’s lifecycle planning. 
• Define rollover rules clearly: Confirm they are covered in LPAs and side letters. 
• Involve auditors and tax advisors: Begin engagement during transaction planning. 
• Standardize LP communication: Make election processes easy to follow and confirm. 
• Track all elections and allocations: Use secure tools to avoid errors. 
• Document all steps: Maintain full records of valuations, investor decisions, and updated ledgers. 

These best practices help ensure continuation fund administration runs smoothly—protecting investor trust and operational integrity. 

Conclusion 

Continuation vehicles provide GPs with flexibility and investors with choice. But they introduce complexity in valuation, reporting, carry mechanics, and compliance. 

A successful transaction requires careful planning, detailed tracking, and timely reporting. GPs who prioritize thoughtful continuation fund administration can manage these transitions effectively—preserving alignment and positioning assets for continued success.

Contact Alex Chapman at [email protected] or call 1-203-308-4690 if you are considering using a continuation fund.