23 September 2025
Once a marginal feature of private equity, continuation funds have evolved into a structural solution adopted by general partners (GPs) seeking more time and flexibility to manage high-performing portfolio companies. These funds - typically set up as special-purpose vehicles (SPVs) - allow GPs to “roll over” key assets from an expiring fund into a new one, offering liquidity to existing limited partners (LPs) while securing additional runway for value creation.
But as the practice becomes more widespread, ethical questions are rising just as fast as transaction volumes. In his latest report for CFA Institute’s Research and Policy Center, “Continuation Funds: Ethical Implications and Considerations in Private Markets,” Jason Deane, CFA, dives deep into the moral complexities, structural tensions, and practical governance challenges tied to this fast-evolving corner of the private equity world.
At the heart of the debate is a critical tension: GPs, who are normally fiduciaries acting on behalf of LPs, take on a dual role in continuation fund transactions - selling assets from one fund they manage to another fund they also manage. While such deals can unlock trapped value and provide welcome liquidity, they also introduce conflicts of interest that are difficult to fully neutralize.
The key ethical challenges Deane outlines include:
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Valuation transparency: Without a truly independent market price, determining fair value becomes contentious - particularly when upside potential remains.
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Fairness opinions: While often required, fairness opinions are rarely conclusive safeguards, and can be perceived as box-checking rather than meaningful governance.
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Asymmetric information: GPs inevitably hold more information than LPs, raising concerns around informed consent, particularly when LPs must quickly decide whether to sell or “roll” into the new vehicle.
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Incentive misalignment: Continuation fund structures can sometimes prioritize GP economics and fee streams over long-term value maximization for original LPs.
To address these concerns, the report stresses the need for clearer ethical frameworks and industry-led best practices. This includes:
- Ensuring LPs receive full and comprehensible disclosures, including clear explanations of valuation methodologies and alternative options.
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Engaging truly independent third parties - not just for fairness opinions, but to design and oversee competitive processes where possible.
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Establishing LP advisory committee (LPAC) involvement early and meaningfully, especially in evaluating conflicts and vetting deal terms.
Deane also notes that the growth of continuation funds is not inherently negative - in many cases, they’ve allowed for more patient capital and better outcomes for stakeholders, especially when market conditions are not conducive to public exits or M&A. However, the sheer scale and frequency of recent transactions (some exceeding USD 2 billion) raise the stakes considerably.
This makes the role of ethical judgment - beyond just legal or regulatory compliance - crucial. While GPs have long navigated conflict-laden terrain, the self-dealing nature of continuation fund setups calls for renewed scrutiny of fiduciary obligations and governance standards.
Ultimately, the report argues, the private equity industry must do more than refine technical mechanisms - it must embed ethical reasoning into its innovation cycles. For LPs, GPs, and the broader financial ecosystem, trust will remain the defining currency in markets that operate with opacity and long lock-up periods.
As continuation vehicles move from exception to norm, now is the moment for the industry to pause and ask not just “what works,” but “what’s right.”