What is a GP-led continuation fund?

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AcadiFi · Accepted Answer

A GP-led secondary (continuation fund) is a transaction initiated by the general partner to transfer one or more portfolio companies from an aging fund into a new vehicle with fresh capital and a new LP base. Existing LPs face a choice: cash out at a negotiated price or roll their exposure into the continuation fund.

Why they have grown from a niche ~$5B market in 2016 to $80B+ by 2024:
1. Aging flagship funds hold trophy assets GPs don't want to sell into weak IPO/M&A markets.
2. LPs in 12-year-old funds want liquidity; continuation vehicles provide an exit mechanism.
3. GPs retain high-quality assets and earn fresh fees and carry on them.
4. Secondary funds have massive dry powder looking for large tickets.

Structure example: Larksfield Partners' 2014 buyout fund owns a software company carried at $650M. GP creates 'Larksfield Continuation Fund II' to acquire this single asset at $700M (slight premium to strike ILPA fair-pricing concerns). Existing LPs can take the $700M pro-rata cash or roll. 60% of LPs cash out; 40% roll. New LPs (secondary funds) contribute $420M to fund the cash-out LPs plus provide $100M fresh follow-on capital.

Conflicts to manage: the same GP sells to itself; valuation must be fair to both selling and rolling LPs. ILPA guidelines require independent fairness opinion, LPAC approval, and rolling LPs getting at least 'status quo' terms. New management fees/carry on continuation fund raise additional conflict concerns.

What is a GP-led continuation fund?

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