ILPA Proposes Updates for Continuation Fund Guidance

We previously covered ILPA’s 2023 guidance, which focused on increasing transparency for limited partners. That guidance coincided with a surge in the proliferation of continuation funds, which have since become an established tool for general partners to manage portfolios and address the diverse liquidity needs of their investors. Building on that foundation, ILPA’s proposed continuation fund guidance seeks to ground general partners’ processes in “improved conflicts management, a stronger evidenced commercial rationale, fair and defensible pricing, and robust process integrity,” further increasing transparency and minimizing friction between general partners and limited partners.

What Are Continuation Funds?

When general partners or fund managers want to hold on to investments past the fund’s expiration date, they use a continuation fund to sell the investment to a successor fund to be held for a longer period. 

ILPA’s 2026 Continuation Fund Guidance

ILPA’s proposed guidance focuses on minimizing friction between general partners and limited partners by improving conflicts management and reinforcing process integrity, thereby increasing the likelihood of approval from the limited partner advisory committee (LPAC). ILPA’s guidance sets out the following three core principles in reviewing a continuation fund transaction, and any deviation from them must be explained to limited partners by the general partner.

1. General Partners Must Show the Continuation Fund Transaction Serves Existing Limited Partners’ Best Interests Despite Inherent Conflicts

General partners must engage early on and consistently with their limited partners and the LPAC to establish a clear line of communication regarding continuation fund transactions. When engaging with the LPAC, general partners should present their rationale and alternatives, disclose conflicts, and provide clear, standardized, and timely information for the LPAC’s conflict review. General partners should also increase transparency throughout the continuation fund process by distributing the ILPA continuation fund disclosure template and adopting a continuation fund policy that is made available to limited partners upon request. Finally, as part of the process for selling continuation fund assets, general partners should run a competitive bid process, backed by an independent third-party valuation, to secure a fair price before the transaction is finalized.

2. General Partners Must Show the Continuation Fund Transaction Maximizes Value to Existing Limited Partners Relative to Alternatives Considered at the Time

When considering a continuation fund transaction, there are often several alternative transactions the general partner could have pursued instead. Therefore, it is critical that general partners demonstrate that the transaction was performed in a manner that maximized value for the existing limited partners. First, general partners should ensure the continuation fund transaction conforms to the existing fund’s limited partnership agreement, without relying on indirect provisions to justify a compressed process, and should engage consistently with any affected co-investors. These steps ensure general partners closely follow the rules limited partners agreed to, increasing trust. General partners should also consult experienced advisors before undertaking a transaction and disclose any conflicts of interest those advisors may have, and limited partners should be offered a forum in which to question the advisors. Finally, when limited partners are deciding whether to roll over their current stake into the next fund, certain rules should be followed. In particular, the election period must give limited partners enough time to assess the transaction’s complexity, running no less than 30 business days from distribution of the election materials, with unrestricted data room access throughout.

3. Rolling Limited Partners Should Be No Worse Off Than if the Transaction Had Not Occurred

In the continuation fund process, general partners have at times implemented conditions that make the new fund a worse option for rolling limited partners. To address this, there should be no overall increase to the management fee or carried interest charged to rolling limited partners. Furthermore, all crystallized carried interest and returns on the general partner’s sponsor commitment should be reinvested in the continuation fund. Additionally, existing side letters should carry over to the continuation fund, updated to reflect each limited partner’s current minimum investment terms, with sufficient time allowed to finalize them. Finally, roll options should not require minimum commitments or stapled financing, elections should not be scaled back, and rolling limited partners should be able to invest through a vehicle offering at least equivalent rights and protections. Together, these measures will help ensure that the continuation fund process remains fair to rolling limited partners.

Implementation of ILPA’s 2026 Continuation Fund Guidance

ILPA has opened the proposed guidance for public comment through August 5, after which it will decide whether to adopt the guidance. ArentFox Schiff attorneys are available to answer your questions and assist with navigating this and other industry changes. Please contact the authors of this article or your AFS attorney contact for more information.

Additional research and writing from Gabriel Maurer, a 2026 summer associate in ArentFox Schiff’s Chicago office and a law student at Northwestern Pritzker School of Law.