Large institutional investors are increasingly questioning whether conflicts of interest are being properly managed in private equity continuation vehicle transactions, where firms effectively sell assets from one fund to another structure they also influence, according to a report by the Financial Times.
Concerns centre on whether some investors serving on limited partner advisory committees (LPACs) may be approving transactions that indirectly benefit other parts of their own organisations, particularly firms with exposure across both traditional buyout funds and secondary strategies that participate in continuation vehicles.
Continuation vehicles – used by general partners to transfer portfolio companies out of mature funds – have become a significant feature of the exit landscape, accounting for roughly 20% of private equity exits last year.
However, some investors argue that governance frameworks have not kept pace with the growth of the market. A number of large allocators, including sovereign wealth funds and US public pension schemes, have raised questions over whether LPAC-driven approvals adequately reflect potential conflicts, particularly where committee members’ organisations may also be investing on the buy side of similar transactions
In some cases, investors say, committee participation has been concentrated among a small group of fund backers, raising concerns about whether broader LP consent should be required before assets are transferred into continuation structures.
The scale of the market has expanded rapidly, with more than $100bn of continuation vehicle transactions completed globally last year, compared with around $70bn in the prior year and less than $7bn in 2015, according to industry estimates.
As competition for assets has intensified, investors report instances where participation in LPACs has overlapped with institutions that also allocate to continuation vehicles through separate strategies, heightening concerns over “dual role” dynamics.
There are also emerging questions around whether commitments to future funds may influence pricing or allocation decisions in continuation vehicle processes, with some market participants suggesting that broader strategic relationships may occasionally shape outcomes alongside formal bidding procedures.
Industry groups have acknowledged the need for clearer disclosure. The Institutional Limited Partners Association has issued guidance encouraging managers to provide greater transparency around incentives, bidding dynamics and any factors that may favour or exclude certain counterparties in continuation vehicle processes.
Private equity firms with multi-strategy platforms, including secondary advisory capabilities, continue to argue that conflicts are mitigated through internal separation of investment teams and formal recusal procedures where overlapping interests arise.
