GP-led secondaries and continuation vehicles — where the diligence gaps hide

The continuation vehicle has graduated from exit-of-last-resort to standard market machinery. Jefferies’ review of 2025 puts total secondary volume at roughly $240 billion, up 48% year over year, with GP-led transactions accounting for $115 billion of it — 48% of the market, and a 53% jump from the prior year’s roughly $75 billion. Continuation vehicles made up the majority of that GP-led volume. The deals are also getting bigger: average vehicle size reached about $900 million, twenty-nine GP-led deals cleared $1 billion, and single-asset vehicles crossed half of all continuation-vehicle volume for the first time.

Continuation vehicle diligence has one structural problem the asset-level work cannot solve: the seller and the buyer are advised by the same firm. Everything else follows from that.

The market outgrew its only purpose-built guardrail

The one US rule written specifically for these transactions no longer exists. The SEC’s Private Fund Adviser Rules, adopted in August 2023, included an Adviser-Led Secondaries Rule that would have required registered advisers to obtain a fairness opinion or valuation opinion for any adviser-led secondary, plus a written summary of the adviser’s material business relationships with the opinion provider over the prior two years.

In June 2024, the Fifth Circuit vacated the Private Fund Adviser Rules in their entirety, holding that the SEC had exceeded its authority under the Advisers Act, and the Commission has confirmed the rules and their compliance dates are no longer in effect. The practical consequence is easy to misread. There is currently no US federal requirement for a fairness or valuation opinion in a continuation vehicle deal. Opinion coverage is a market practice and a negotiating item — not a legal floor. What survives in full is the adviser’s Advisers Act fiduciary duty and the antifraud provisions of Section 206, which existed long before the vacated rules and do not depend on them.

For an LP, that shifts the burden. The protections in the next deal are the ones negotiated into it.

Conflicts: the GP is on both sides, and the file should show it

ILPA’s guidance on continuation funds states the structural fact plainly: these transactions are conflicted by nature, with the GP sitting on both sides. Its two governing principles — the transaction should maximize value for existing LPs, and rolling LPs should be no worse off than if it had not occurred — are the standard against which the process record gets read.

The diligence questions are about that record. Did the GP present the rationale to the LPAC and show that alternatives for the asset were genuinely explored? Were all conflicts brought to the LPAC for a waiver vote — including conflicts the fund agreement arguably pre-cleared? ILPA recommends the LPAC receive ten business days to review and an in camera session before the conflict vote, and recommends GPs avoid LPA terms that pre-clear continuation-fund conflicts at all.

The SEC’s settled action against American Infrastructure Funds, announced in September 2023, shows what the failure mode looks like. The Commission charged the adviser with breaching its fiduciary duty by, among other things, moving assets from expiring funds into a new fund it also advised — extending the lockup on investor capital by at least a decade without investor consent, without offering existing investors an exit option, and without disclosing the adviser’s conflicts. The firm settled for more than $1.6 million — a $1.2 million civil penalty plus $445,460 in disgorgement and prejudgment interest paid to investors. That case was brought under pre-existing fiduciary law; the vacatur changed none of the exposure it represents.

Valuation: price discovery is a process, not a number

The same Jefferies review puts average LP-portfolio pricing at 87% of NAV. Whatever a continuation vehicle’s reference price is, the GP setting it has carry on one side of the trade and a new fee stream on the other.

ILPA’s answer is process: a competitive process to establish a fair price, with third-party price validation. Fairness opinions appear in the guidance as a case-dependent protection, not a mandate — which matches the post-vacatur legal reality. So the valuation diligence is about the auction, not the appraisal. Who was solicited, and how many parties priced the asset? How was the lead investor selected, and on what terms? Where an opinion was obtained, what business relationships run between the provider and the GP — the disclosure the vacated rule would have compelled is now a question the LP has to ask unprompted. Deeper methodology questions on hard-to-value positions belong to valuation diligence proper; here the issue is whether the price was discovered or declared.

LP optionality: the clock is a term

The election window is where weak processes show themselves. ILPA documents LPs being pushed into roll-or-sell decisions in windows as short as ten days, and recommends no less than thirty calendar days or twenty business days. A complete election menu offers rolling pro rata, selling on the offered terms, rolling plus committing more, or a combination.

For LPs who roll, ILPA’s standard is status quo economics: no increase to the management fee basis or rate, no increase to carried interest, no reduction of the preferred-return hurdle — and no crystallization of carry on rolling LPs’ interests, with GP carry attributable to selling LPs rolled into the new vehicle. Rolling LPs’ side-letter protections, at minimum the risk and governance terms, should carry over. And existing LPs should see what buyers see: documentation, models, and data-room access on par with prospective purchasers, plus a disclosure document flagging every term that differs from the original LPA and the framework for allocating transaction expenses. An LP asked to decide in two weeks, on less information than the lead buyer holds, under economics that crystallize the GP’s carry, has learned what it needs to know about the process.

The floor depends on the documents and the domicile

One more gap hides in the fund agreement itself. Delaware law permits a limited partnership agreement to expand, restrict, or eliminate the fiduciary duties of the general partner — the statute preserves only the implied contractual covenant of good faith and fair dealing, which cannot be eliminated. In a Delaware-fund continuation vehicle, the LPA’s conflict and duty-modification language may therefore be the real protection floor, not common-law fiduciary duty. Reading those provisions is not paperwork; it is the diligence.

The federal overlay turns on SEC registration, not domicile: the vacated rule reached registered advisers, excluding only non-US advisers’ offshore funds, whose duties under offshore law require jurisdiction-specific analysis. The SEC’s FY2026 examination priorities, published November 2025, never name continuation vehicles, but their private fund focus areas — fiduciary duty, conflicts, valuation, alternative investments with extended lockups, differential treatment via side letters — land squarely on GP-led deals.

The practical takeaway: underwrite the process, not just the asset. Three files tell the story — the conflict record before the LPAC, the price-discovery record behind the number, and the election terms offered to existing LPs. Where any of the three is thin, the gap is the finding.

SetOne Labs pressure-tests continuation vehicle processes from both sides of the table — conflicts, valuation support, and the terms put to existing LPs. To discuss a transaction in confidence, begin a conversation.

SetOne Labs provides advisory services and general information. Nothing here is legal, tax, or investment advice.