Continuation Fund Due Diligence: A Practical Guide

Continuation fund due diligence isn't standard buyout DD with a different label. The asset is already known. What's new is the structure, the pricing, the economics, and the conflicts that come with a GP sitting on both sides of the trade. This guide gives you the workstreams, questions, and expert validation steps you need to run a tight process.

Quick overview: what you must confirm in any continuation fund deal

Continuation funds have become a mainstream feature in private equity. In 2024, firms achieved 89 exits totaling $47.3 billion via continuation funds. In H1 2025, global secondary transaction volume hit $101 billion, a 42% increase year over year, with GP-led secondaries accounting for nearly $46 billion of that total.

Due diligence in continuation funds is critical due to GP conflicts of interest. The GP is both the seller (disposing of the asset from the legacy fund) and the buyer (acquiring it into a new vehicle). That dual role can distort pricing, fee structures, information flow, and asset selection. Your DD process must be shorter and more targeted than a primary commitment, because the asset is known but the transaction design is not.

Here are the six core workstreams you must run:

• Asset quality. How has the company performed since acquisition? What are the tail risks?

• Pricing and valuation. Is the entry multiple supported by comps, fairness opinions, and competitive bids?

• Governance and conflicts. What conflicts exist, and has the LPAC been involved?

• Economics (fees and carried interest). Are fee and carry resets fair to rolling LPs?

• Fund documentation. LPA terms, side letters, waterfall mechanics, jurisdiction.

• Execution risks. LP election timelines, information access, operational capability.

When timelines are tight, FieldSignal gives you fast access to former executives, customers, and secondary market professionals who can validate assumptions through targeted expert calls.

Understanding continuation funds and GP led secondaries

A continuation fund is a new investment vehicle created by a GP to acquire one or more assets from an existing fund nearing the end of its term. Continuation funds emerged after the global financial crisis and accelerated between 2018 and 2024 as IPO windows narrowed and sponsor-to-sponsor exits slowed. They allow GPs to extend asset holding periods beyond original fund lifecycles and retain control over high performing assets.

Key relationships:

• Continuation funds are a subset of gp led secondary transactions. Other GP-led structures include tender offers and stapled secondaries.

• LP-led portfolio sales are initiated by existing investors selling fund interests, not by the GP restructuring assets.

• Continuation vehicles give the GP a way to provide early liquidity to selling lps while retaining ownership for existing lps who want to roll.

Typical triggers include a "crown jewel" asset needing 3 to 5 more years of growth, a mixed legacy fund where one or two underlying companies justify follow on capital, or current market conditions where traditional exits don't deliver a fair price.

The key parties involved are existing LPs in the original fund, new secondary investors entering the new vehicle, rollover LPs who choose to stay, and the GP who manages both sides.

How continuation fund transactions are structured

The typical continuation fund deal involves multiple operational stages. Here's how it unfolds from the GP's perspective:

1. Asset selection. GP identifies which assets from the existing fund are suitable for continuation based on growth profile and cash flow predictability.

2. Engage advisor. GP hires secondary advisors or investment banks for valuation support and to run a competitive bidding process.

3. Price discovery. Solicit bids from secondary investors, draft term sheets, decide on management fee basis and carried interest structure.

4. LPAC process. Present rationale to LPAC, review conflicts, obtain waivers if needed.

5. LP election. LPs receive full information packages and decide whether to cash out, roll, or partially roll.

6. Closing. Assets transfer, proceeds distribute, and the new continuation fund begins operations.

Continuation funds involve the GP selling an asset to themselves in a new vehicle. Pricing is often anchored by a lead secondary buyer, with fairness opinions and competitive auctions used to validate valuation. Common legal structures include Delaware or Cayman LPs and SPV structures for single asset continuation funds.

Your due diligence must address both the asset fundamentals and the deal mechanics. Don't treat them separately.

Single asset vs multi asset continuation vehicles

Continuation funds can be structured as single-asset or multi-asset vehicles, and the DD approach differs significantly.

Single asset continuation funds concentrate exposure in one company. Single-asset funds require high conviction in a specific asset's business plan. You need full company-level commercial, operational, and management DD. Mistakes at the company level have outsized impact on returns.

Multi asset continuation vehicles often include a blend of high performers and "tail" assets. Multi-asset funds provide more diversification in investment strategy, but risk emerges when weaker assets subsidize stronger ones. In 2023, nearly 59% of continuation fund transactions were multi-asset.

How underwriting differs:

• For single-asset vehicles, you model detailed value creation levers: customer expansion, pricing, cost savings, capex.

• For multi-asset vehicles, you stress test portfolio correlations, downside scenarios, and whether some assets are dragging the portfolio.

• Transaction fees, GP economics, and carried interest terms can differ across assets in multi-asset deals. You must understand whether fees are allocated pro rata or weighted by value.

Compared to multi asset continuation vehicles, single asset continuation vehicles let you go deep on one company's forecast, but you bear full concentration and exit risk. Multi-asset vehicles reduce idiosyncratic risk but hide performance variability and complicate valuation.

Core due diligence questions for continuation funds

Continuation fund due diligence sits between company-level DD and GP or fund DD. You're verifying both the asset fundamentals and the transaction design. Assessing asset quality and growth potential is vital in continuation funds. Conducting deep operational and financial due diligence is essential for upfront investment.

Questions you should answer:

• Why is the GP pursuing a new continuation fund rather than selling now? What traditional exits were considered?

• Were other buyers approached through a competitive bidding process? How many bids?

• What changed since the original investment memo in market conditions, performance, or risk factors?

• What is the incremental value creation plan under the new vehicle? Specific operational initiatives, planned M&A, pricing actions, technology roadmap over 3 to 5 years.

• What exit paths are realistic? Strategic acquirers, IPO viability in the 2026 to 2030 window, whether the GP assumes multiple expansion or only EBITDA growth.

• What are working capital needs, capex requirements, and any obligation for follow on capital that the continuation vehicle must fund?

• Interview former executives, competitors, customers, and suppliers through an expert network like FieldSignal to validate the GP's business case and stress test projections.

Asset quality and performance track record

Start with historical performance since the original acquisition: revenue CAGR, EBITDA growth, margin trends, and key KPIs compared with the original underwriting case. General partners manage continuation funds to extend asset holding periods, so you need to confirm the asset still justifies that extension.

• Check whether the asset has undergone multiple recapitalizations. How much value has already been extracted through dividends or partial sales? That directly affects remaining upside for rolling LPs.

• For growth assets, analyze cohort data, churn, pricing power, and competitive dynamics. For mature companies, examine contract structure, backlog, and buyer concentration.

• Compare the GP's narrative with independent expert feedback. Is this truly a high performing asset, or is it simply hard to sell in the current market?

• Document any material misses against prior budgets or business plans. If management has missed targets, those gaps should be explained before committing new investments.

Valuation, pricing, and fairness

Continuation fund pricing typically references a recent valuation date. You must understand any "stub period" performance between that date and signing. If the company underperformed in the stub, the pricing may already be stale.

• Cross-check the implied entry multiple for the continuation vehicle versus current comps, recent sponsor trades, and precedent M&A for similar companies.

• Valuation methodology should come from independent third-party fairness opinions. A fairness opinion from a third-party firm ensures objective asset valuation. Review summaries of assumptions and evidence of arm's length process, not just headline numbers.

• Test downside scenarios. What happens if exit is delayed by 2 to 3 years beyond the base case? Model what distributions look like under compressed multiples.

• Calculate dilution from any management incentive plan top-ups or sweetened carry. If the GP takes fresh carry on already de-risked value without rolling a meaningful share of accrued carry, that's a red flag.

• Look for preferential terms for new investors that might disadvantage existing lps who roll. Comparison of fee structures is important to ensure they are market-standard.

Governance, conflicts of interest, and LP protections

Conflicts of interest are inherent in continuation fund structures. The GP's presence on both sides of the entire transaction creates potential conflicts across every major deal term.

Main conflict areas:

• Pricing. Risk the asset is sold below fair price.

• Asset allocation. Moving only strong assets to the new vehicle, leaving weaker ones behind.

• Fees and carried interest reset. Can favor GP or new investors over rolling LPs.

• Transaction expenses. Who pays for fairness opinions, legal, advisory?

• Information asymmetry. New investors might receive more recent or detailed data than existing lps.

ILPA guidance on continuation funds recommends that the institutional limited partners association standard processes include LPAC approval of conflicts, independent advice paid as a fund expense, and early information access for all parties involved. Red flag behaviors include rushed election windows, limited buyer outreach, and opaque valuation processes.

Election process and LP treatment

The standard LP election gives existing investors three options: sell for cash, roll into the new fund, or partially roll. ILPA suggests giving at least 30 calendar days or 20 business days to decide. LPs should be given at least 30 days to evaluate continuation fund proposals.

• Confirm all existing LPs received the same information package as new investors, including management presentations, financials, and fairness opinions.

• Understand how the status quo option works. Rollover LPs should keep legacy economics. No increases in fee percentage, no higher carry, no lower preferred return. Rolling LPs should be no worse off than if the continuation fund transaction hadn't happened.

• Watch for operational execution risks: AML/KYC complexity, subscription document timelines, and cut-off dates that might disadvantage certain limited partner groups.

• LPs can negotiate additional reporting rights, co-investment options, or observer seats as part of supporting the transaction. This is the moment to ask.

Managing conflicts between legacy fund and new vehicle

Evaluate whether the legacy fund is being fairly compensated. Check for residual obligations, escrows, or indemnities that stay with old LPs after the asset sale.

• Verify that weaker assets aren't being left behind in the original fund while only strong assets move to the continuation vehicle. If the GP can select assets, the remaining LPs in the legacy fund bear the cost.

• Request documentation of alternative exit routes the GP considered. Why were a traditional sale or IPO rejected? The GP has a fiduciary duty to demonstrate that the continuation fund serves LP interests.

• Alignment of interests ensures the GP has a meaningful stake in the new vehicle. Verify to what extent accrued carry is reinvested. If the GP crystallizes all carried interest upfront without rolling, that's misalignment.

• Use external experts, such as former LPAC members or secondary advisors via FieldSignal, to benchmark the structure against market practice.

Fees, carried interest, and economic terms

Continuation funds often reset management fees and carried interest. You must model net returns under both the old and new economic terms to see what rolling actually costs you. Only 9% of 2021 fund vintage returned capital to LPs after three years, which helps explain why GPs increasingly pursue continuation vehicles rather than waiting for traditional exits.

• Fees in continuation vehicles are typically charged on invested capital or NAV rather than capital commitments. Fund duration is usually 4 to 6 years, not 10.

• Compare terms between new secondary investors and rolling LPs. Any hidden preferences or fee breaks not disclosed in marketing materials should be flagged.

• Transaction expenses are heavily negotiated between GPs and investors. Know who pays what.

Structuring management fees and carried interest

Continuation funds charged management fees between 1.4% and 2% in 2023, with almost 90% calculating fees on invested capital versus committed capital. Half of SPVs formed in 2023 had over $10 million in assets.

• Carried interest design matters: new carry crystallization at closing, potential step-ups in carry percentage, and whether there's a preferred return or catch-up.

• Misalignment appears when a GP takes fresh carry on already de-risked assets without rolling a significant portion of accrued carry. Continuation funds allow GPs to retain ownership of high performing assets, but that retention should come with skin in the game.

• Single asset continuation funds sometimes use bespoke waterfalls. Simulate distributions under different exit timings, early and delayed.

• Confirm whether GP co-investment in the new vehicle is funded with cash or simply rolled economics. Cash alignment is stronger than paper alignment.

Allocating transaction and ongoing expenses

Main transaction costs include legal, tax, fairness opinions, financial advisors, insurance, and administration. You must know which vehicle or investor group pays each category.

• Many continuation fund documents allow non-pro-rata allocation of expenses. Check whether costs skew toward the legacy fund or the new vehicle.

• Ongoing costs like monitoring fees, broken-deal expenses for follow-on acquisitions, and administrative overhead flow through the P&L and waterfall. Understand the impact.

• Request a side-by-side comparison of total expense burden on old LPs versus new investors. Absence of detail is itself a red flag.

Operational, legal, and tax due diligence

Operational, legal, and tax issues in continuation funds can materially affect net returns even when the asset performs as planned. GPs face dual workstreams when managing legacy and new fund operations simultaneously.

Key documents to review: LPA for the continuation vehicle, amended legacy fund documents, side letters, fairness opinion letters, and tax structuring memos. Coordinate with legal and tax advisors but understand the commercial impact of provisions like transfer restrictions, liquidity mechanics, and GP removal rights.

Documentation, reporting, and governance rights

Main governance terms to negotiate in continuation vehicles:

• Reporting frequency (quarterly at minimum), budget approval rights, major transaction consents, and key person protections.

• Compare legacy fund governance to the new vehicle. Check whether LP rights are being diluted.

• Confirm audit requirements, valuation policies, and the role of third-party administrators.

• Verify how often LPAC or equivalent bodies meet and what authority they have over follow-on investments and asset sales.

• Ask other LPs or former LPAC members, via an expert network, how effectively this GP runs governance in practice compared with what's on paper.

Legal and tax structuring considerations

While specialist counsel leads here, you should understand the headline tax position for typical investor types (US taxable, US tax-exempt, non-US LPs). The securities and exchange commission and the exchange commission oversight also applies to fund managers operating in the US, and structures typically need to account for regulatory filings.

• Check for tax leakage in holding company chains, use of blocker entities, and potential impact of future tax law changes over the intended holding period.

• Legal points that directly affect economics: indemnity caps, survival periods, escrow arrangements, and any GP guarantees related to pre-closing liabilities.

• Continuation funds can reset transfer restrictions. Verify your ability to sell interests in the secondary market later. This matters for providing liquidity down the line.

Using expert networks like FieldSignal in continuation fund due diligence

Continuation fund timelines are tight. You often can't run a full consulting project. Targeted expert calls are the fastest way to stress test the GP's thesis and validate pricing assumptions.

FieldSignal connects you with former executives, customers, competitors, and secondaries professionals who've seen similar continuation fund transactions. You get pointed feedback without the cost or delay of a large-scale engagement.

• FieldSignal operates on a pay-per-use model with transparent pricing. No annual retainer, no minimum commitment, no markup on expert honoraria.

• Large networks like GLG, AlphaSights, Third Bridge, and Guidepoint often require six-figure annual retainers. FieldSignal doesn't.

• Compliance controls mirror those at established networks: expert screening, conflict checks, no MNPI sharing.

• For a single asset continuation fund, bring questions on pricing power, churn, competitive roadmap, and customer satisfaction. For GP and process experts, ask about market-standard carry structures and buyout strategies.

• Beyond 1:1 calls, you can run short surveys or panels through FieldSignal to test customer renewal risk for the asset in the continuation vehicle.

Sample expert workstreams for a continuation fund transaction

Here are four workstreams that map directly to your DD needs:

1. Commercial DD interviews (top 5 to 10 customers). Key questions: renewal intentions, satisfaction with product roadmap, competitive alternatives they're evaluating, pricing sensitivity.

2. Former senior managers of the portfolio company (3 to 5 calls). Key questions: management quality, operational discipline, cost control, internal culture, and whether the value creation plan is achievable.

3. Secondary buyers or advisors who see many GP-led deals (2 to 3 calls). Key questions: is the pricing fair relative to the secondary market? Are the economic terms standard? How does this GP's process compare with others?

4. GP reference checks via former LPAC members or co-investors. Key questions: how did the GP handle prior gp led transactions? Were LPs treated fairly? Any concerns about the GP's investment strategies or investment advice quality?

FieldSignal sources niche profiles like ex-regional heads, former board observers, or competitors' product leaders. Calls are recorded and transcribed, so you can quickly convert qualitative insight into an investment memo. This targeted input should feed directly into your valuation sensitivities, risk factors, and recommendation on whether to sell or roll.

Summary checklist and next steps

Here's what you should copy into your working DD checklist for your next continuation fund transaction. Prioritize valuation and conflicts in the first week, then go deeper on secondary questions. Continuation funds generated $47.3 billion in exits in 2024, so these deals aren't slowing down. Careful planning on each deal protects your returns.

For a broader view of how PE buyers structure diligence, see our guide to the private equity research process.

1. Review asset performance vs original underwriting: revenue, margins, EBITDA growth, KPIs.

2. Obtain GP's exit alternatives analysis: why continuation vs traditional sale or IPO?

3. Request valuation materials: comps, precedent M&A, fairness opinions, stub-period performance.

4. Detail economic terms: management fee basis, carry rate, preferred return, any carry crystallization.

5. Scrutinize inherent conflicts and potential conflicts: GP's dual role, LPAC approval, disclosure completeness.

6. Assess LP election mechanics: time window, options (roll, sell, partial), information symmetry, default treatment.

7. Examine governance rights: reporting, audit, major decisions, LPAC oversight in the new investment vehicle.

8. Legal and tax structuring: entity jurisdictions, tax leakage, transfer restrictions, indemnities.

9. Expense allocation: transaction costs, ongoing fees, non-pro-rata risks.

10. Split-scenario modeling: base case exit, delayed exit, downside case with distributions to rolling vs new LPs.

11. Expert calls to validate: customers, competitors, GP-led secondary specialists.

12. Document a clear recommendation for each option: sell, roll, or partially roll, with net MOIC and IRR estimates. Include potential benefits and risks under each path.

The primary purpose of this process is to protect your returns and ensure you're making an informed decision, whether that's providing liquidity by cashing out or rolling into new investments with the GP.

If you're running DD on a GP-led secondary or continuation vehicle and need fast, targeted expert calls, reach out to scope a project.

See if FieldSignal fits your project → miles@fieldsignalhq.com