casemark/analyzing-continuation-fund-structures

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

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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