A continuation fund is a GP-led secondary transaction in which the sponsor of an existing private real estate fund moves one or more remaining portfolio assets out of the original fund and into a newly formed vehicle, typically backed by secondaries-focused capital and offering existing LPs the choice to roll their interests into the new fund or cash out at the transaction price. Continuation funds emerged as a mainstream tool in private equity in the late 2010s and migrated into private real estate during the 2022-2024 distribution slowdown, when fund vintages reached their natural wind-down but assets remained unsold in a frozen transaction market.
The structural mechanics turn on three negotiation points. The valuation at which the asset transfers from the old fund to the new fund determines how much value existing LPs realize if they cash out and how much remaining upside rolling LPs preserve.
The reset of GP economics in the new vehicle (a fresh promote hurdle, often with crystallized carry from the original fund) determines whether the GP is genuinely re-underwriting the asset or simply extending its fee earning runway. The terms of the new fund (hold period, financing structure, governance, fee rates) determine whether rolling LPs are signing up for a materially different deal than the one they originally committed to.
The conflicts of interest are obvious enough that ILPA's 2023 Continuation Fund Guidance has become the de facto governance standard. The GP sits on both sides of the transaction, valuing the asset for sale to itself, and the existing fund's Advisory Board is asked to bless a transaction in which the GP's economic interests diverge from the LPs that don't roll.
Best practice now requires an independent fairness opinion, a competitive process testing third-party bids, full disclosure of GP economics in the new fund, and a status quo option that preserves the original economic terms for any LP unwilling to cash out or to roll into the new structure. The transaction architecture is sophisticated enough that institutional LPs typically engage dedicated legal and financial advisors to evaluate the offer.
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