Managing Economics and Conflicts in GP-Led Continuation Vehicles

Continuation vehicles — newly established investment entities created to acquire one or more assets from an existing fund managed by the same sponsor — have moved from being a niche liquidity solution to a mainstream portfolio management and exit tool for private capital sponsors. In 2025, secondary transaction volume reached $226 billion, up 41% from 2024. In a market characterised by extended holding periods, valuation uncertainty, and higher limited partner (LP) liquidity demands, general partner (‘GP’)-led recapitalisations have become an increasingly important feature of the sponsor toolkit. Although these transactions can foster significant alignment and create value when approached carefully, they also present intricate issues related to economics, governance, and conflicts of interest that must be addressed through careful planning.

This article explores the rise of continuation vehicles in real estate and highlights the principal economic and conflict-mitigation considerations sponsors should address when implementing a continuation vehicle as part of an exit strategy.

In a GP-led continuation vehicle, the sponsor initiates and structures a ‘continuation vehicle’, identifies certain assets to be transferred, negotiates pricing, and typically leads the engagement with secondary investors. The GP remains on both sides of the transaction: as a seller on behalf of the existing fund and as a buyer and sponsor of the new vehicle, which creates both opportunity and conflict (as will be discussed in the next section).

The Landscape

The secondaries market in private real estate has expanded significantly as traditional exits — sales of assets and portfolios in the open market — have become less reliable and holding periods have lengthened. The life cycle of a conventional closed-ended real estate fund assumes a certain predictability in realisation timelines, which has been challenged by elevated financing costs, debt maturities, valuation gaps, geopolitical issues, and softer market conditions, among other factors. At the same time, institutional LPs have faced liquidity pressures, driven by reduced distributions.

Alongside this, we have seen an evolution in institutional secondary buyers — investors looking to deploy capital in secondaries transactions that are not necessarily opportunistic or distress-driven. As a result, real estate fund managers are increasingly turning to continuation funds as the solution to preserving the long-term value of high-quality investments while meeting the liquidity needs of their fund investors.

Key Economic Considerations in Continuation Vehicles

Continuation vehicles generally involve a reset of economics, with value crystallised at closing and a new fee and carry arrangement structured. That said, in some situations, rolling LPs are offered the option to retain their existing economic package or part thereof (alongside the opportunity to invest on the noneconomic terms of the new vehicle). In either case, the structuring of management fees, carried interest, and GP commitment require consideration.

Management Fee

Management fees in continuation vehicles are often lower than in the selling vehicle, reflecting a more concentrated portfolio and, in most cases, the fact that the assets have matured from an opportunistic execution phase to a stabilized portfolio with lower operational requirements and risk. Fees are commonly calculated as a percentage of invested capital rather than committed capital and, in the current market, frequently come in at less than 1%.

That said, there is no one-size-fits-all approach. Sponsors should be prepared to justify fee levels by reference to the operational intensity of the assets, scope of additional investment activities, ongoing capital requirements, and the services provided. Transparency around fee offsets and expense allocation is critical to LP acceptance.

Carried Interest

Carry structures in continuation vehicles are increasingly bespoke. While many continuation vehicles retain a familiar preferred return and carry percentage, sponsors may agree to tiered waterfalls that provide enhanced alignment or downside protection for investors. In some cases, particularly where the asset is viewed as exceptionally high quality, sponsors may negotiate premium carry, reflecting the value of continued access to a scarce or strategic asset. These arrangements can be acceptable to investors when supported by a credible valuation process and a clear growth story.

GP Commitment

Meaningful GP commitment remains a central alignment lever. GP capital in a continuation vehicle may take several forms: a flat commitment, a percentage of total commitments, or a reinvestment of a portion of proceeds from the transaction itself, in particular where carry has been crystallised in respect of the selling vehicle.

While market practice varies, GP commitments typically range from 1% to 3%, depending on the size of the transaction and the sponsor’s economics. Investors increasingly expect sponsors to demonstrate material ‘skin in the game’, particularly where carry is reset and/or enhanced.

Managing Conflicts of Interest

Conflicts of interest are inherent in GP-led continuation vehicles and are important to manage.

Valuation

Valuation is often the most scrutinised aspect of a continuation vehicle transaction. Best practice typically includes a combination of the following:

• third-party valuations of the asset(s)
• an independent fairness opinion
• a competitive market process (to either set pricing initially or test it after the fact)
• advisory board or LP (or equivalent) consent from the existing fund

The goal is not simply to establish a defensible price but to provide LPs with confidence that the transaction reflects market reality rather than sponsor preference. These measures are also helpful in protecting the sponsor against any future claims related to the overall process.

Rationale for the Transaction

Sponsors should clearly articulate the commercial rationale for pursuing a continuation vehicle rather than a traditional exit. This includes explaining alternative options considered, the timing of the transaction, and why continued ownership is believed to maximise value. In many cases, sponsors will also point to the structural benefits of a continuation vehicle, including the ability to provide liquidity to existing investors while offering new and rolling investors exposure to the asset(s) without the blind-pool risk or early-stage J curve typically associated with primary fund commitments.

Importantly, sponsors remain subject to fiduciary and other duties in connection with these decisions, and the narrative should reflect that responsibility.

Information to LPs

Information asymmetry is a key risk in GP-led processes. LPs should be provided with timely, comprehensive disclosure regarding the transaction terms, economics, valuation methodology, and governance arrangements. Clear explanations of how conflicts are identified and managed can materially improve LP engagement and outcomes.

Process and Governance

Governance mechanisms, including the role of the advisory committee, approval or waiver thresholds, and procedural safeguards, all play a critical role in mitigating conflicts. LPs should be given sufficient time and information to evaluate the transaction, and clarity around transaction fees and expenses is essential.

Conclusion

Continuation vehicles are now a permanent feature of the private capital landscape and a growing theme within real estate. When structured and executed well, they can align interests, unlock liquidity, and support long-term value creation. However, they demand careful attention to economics, governance, and conflicts of interest.

For sponsors, the challenge is to balance flexibility and control with transparency and fairness. For investors, the focus is on process integrity and alignment. As market practice continues to evolve, those that approach continuation vehicles with discipline and clarity will be best positioned to navigate exits.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.