Leading investors in private equity have urged their peers to scrutinize continuation vehicle transactions more rigorously, cautioning against approving terms without thorough engagement or challenge of fund managers. The Institutional Limited Partners Association (ILPA), a prominent body representing some of the world’s largest private equity backers, issued updated guidance calling for governance committee members to approach these deals with heightened diligence and appropriate expertise.

Continuation vehicles, which have gained traction amid a sluggish market for third-party company sales, enable private equity firms to transfer assets from older funds into newly raised vehicles they control. This structure allows firms to retain holdings longer, potentially selling at higher valuations in the future. However, such deals inherently carry conflicts of interest because the buyout firm effectively acts on both the selling and buying sides of the transaction, raising concerns about whether asset prices are fair.

ILPA emphasized that fund governance committees must be well prepared to assess and, when necessary, contest buyout managers’ handling of these conflicts. The association warned against committees that merely “rubber stamp” disclosures on conflicts, stressing that meaningful scrutiny is essential to protect investors’ interests. The guidance acknowledges that committee members themselves may face conflicts, as some investors hold stakes both in the selling fund and in the continuation vehicle, or have roles in separate strategies that back continuation vehicles.

Several large private capital firms—including Hamilton Lane, HarbourVest, and Partners Group—operate across multiple fund types, investing in both traditional buyout funds and continuation vehicles. While no wrongdoing has been alleged against these firms, ILPA highlighted the complexity such structures introduce. A committee member might be rolling its existing interests into a continuation vehicle while also participating as a lead investor in that vehicle through another part of its organization, complicating impartial decision-making.

Concerns about the effectiveness of fund governance committees have grown amid the rapid rise in continuation vehicle transactions, which accounted for roughly 20% of buyout exits last year. Some significant investors have voiced worry that small committees occasionally approve deals too readily, potentially influenced by overlapping business interests. Moreover, there have been longstanding issues about investor representatives attending committee meetings unprepared or delegating attendance to less experienced staff, a problem made more visible by the spotlight on continuation vehicle deals.

The new ILPA guidance seeks to reinforce the responsibilities of fund investor committees, urging members to engage proactively and with sufficient expertise to uphold robust oversight in this evolving segment of the private equity market.