Continuation funds: due diligence when the GP sits on both sides

Continuation vehicles are now a routine exit route. When the seller also manages the buyer, independent financial due diligence has to test the GP's own numbers, not just the price.

Continuation vehicles are no longer an exceptional tool. Jefferies' review of 2025, published this month, puts GP-led secondary volume at $115bn, up 53% on 2024. Continuation vehicles (CVs) made up 89% of that. Twenty-nine CVs were above $1bn, against 21 the year before. Of the 100 largest sponsors by assets under management, 78 have now done at least one. GP-leds were about 14% of sponsor-backed exit volume.

The first weeks of 2026 confirm the trend in Europe. Eurazeo closed a €480m continuation vehicle with Pantheon on a portfolio of senior European credit assets. Coller closed its ninth flagship secondaries fund at $17bn in January. EQT then announced it would combine with Coller. The capital is there to fund more of these deals.

The structure has not changed. The GP sells an asset from a fund it manages to a new vehicle it will also manage. It is usually funded by a lead secondaries buyer and the LPs who choose to roll. The GP is on both sides of the deal. This note covers what an independent financial due diligence must deliver in that set-up.

Why the usual buy-side logic does not apply

In a normal sale, the buyer's adviser tests the seller's story, and the seller has every reason to present it favourably. In a CV, the GP writes that story and also takes part in the new vehicle. It often reinvests its carry, sometimes on reset terms. The GP has an interest in a price high enough to satisfy selling LPs and to crystallise carry. It also needs a price low enough to make the new vehicle's returns work. Which effect wins depends on the deal terms, not on intentions.

Almost all the information comes from the GP: the business plan, the valuation, the data room, management access. Lead buyers have often done narrow work, mostly legal. They focus on title, cap table and contingent liabilities, and spend little on financial or operational testing. Their justification is that the GP knows the asset. That is precisely the problem.

Separate the GP's view from what the evidence supports

The core of our work is to split every key number into two layers: what the GP believes, and what the records show.

Budget-to-actual track record. The CV case rests on a forward plan, usually five years. The best evidence on that plan is how the same GP and management team forecast the same asset in the past. We rebuild every budget and reforecast since the original acquisition and compare them with audited actuals. On one mid-cap services asset, budgets for the previous four years had overstated EBITDA by 6%, 9%, 4% and 7%. The CV plan assumed a 12% EBITDA CAGR. A buyer applying the historical average gap would cut year-three EBITDA by roughly 6–7%, before any debate on the strategy.

Adjustments to the base year. The pricing EBITDA is often the GP's management EBITDA, not a diligenced one. We list every add-back and classify it: supported by documents, supported by a reasonable estimate, or the GP's judgment only. Run-rate synergies from add-ons and annualised price increases usually fall into the third category.

Net debt and the cash profile. CVs often fund new acquisitions, so the vehicle takes on a balance sheet and a capex plan along with the asset. Deferred capex, factoring, earn-outs on past add-ons and unpaid management bonuses all affect the equity value transferred. Each is easier to defer than to disclose.

The output is not a second business plan. It is a bridge from the GP's case to an evidence-based case, line by line, with the reason for each gap. LPACs, rolling LPs and the lead buyer can each apply their own view of risk to that bridge.

Fairness opinion and TS work are not the same thing

Many LPs treat the fairness opinion as the independent check. It is useful, but it answers a different question.

No rule requires either one. In 2023 the SEC adopted a rule that would have required a fairness or valuation opinion for adviser-led secondaries. The Fifth Circuit vacated the whole private fund adviser package in June 2024. ILPA's 2023 guidance says only that an independent fairness opinion, a partial sale to a third party or a minority stake sold at arm's length "may be helpful" to the LPAC.

In practice, a fairness opinion built on an unadjusted plan can confirm a range that is wrong to begin with. The two pieces of work fit together best in sequence. Diligence establishes the evidence base first, and the opinion provider then values it.

CV squared: carrying forward earlier adjustments

A newer pattern is the second continuation vehicle: an asset moved into a CV a few years ago is now moved into another one. ION Analytics reported a build-up of these in 2025. At least one follow-on CV in US healthcare was shelved in August after investors pushed back. Bankers still describe them as far from routine. Investors in the first CV have a fixed term and often prefer cash, which is one more reason the price will be challenged.

For diligence, a CV-squared asset has one advantage: there is a previous file. We ask for the first CV's diligence reports and the GP's underwriting case at that time, and we reconcile them with what happened.

Three questions come first:

1. Which "one-off" items recurred? On one asset with €14m of pricing EBITDA, €1.1m of add-backs had been accepted as non-recurring at the first CV. Most of them appeared again in each of the following three years. They belong in the base, not in the adjustments.
2. Did the plan from the first CV come true? The difference between the first CV plan and actual results is the most relevant track record available. It covers the same asset, the same sponsor and the same type of transaction.
3. What changed in net debt? Add-ons, refinancing and payment-in-kind interest since the first CV change the equity bridge. Each item needs to be reconciled from one closing to the next, not taken from the latest balance sheet only.

What LPs should expect

ILPA's guidance gives LPs a basis to ask for more: the GP's rationale and the alternatives explored, enough information for the LPAC to judge the process, and a status quo option without fee or carry changes. A CFA Institute paper last September found that only a minority of CVs offer a true status quo option. Timelines are tight. ILPA suggests at least 10 business days for the LPAC and 20 for LPs to elect. Independent diligence has to be scoped to fit that window, so it needs to start before launch, not after.

What to do

• Lead buyers: budget for full financial DD, not only a legal review, and ask for the GP's historical budgets on day one.
• LPACs: ask whether the fairness opinion relied on the GP's plan unadjusted, and ask for the bridge between the plan and the diligenced case.
• GPs: commission vendor due diligence that separates your view from the evidence. It speeds up the LPAC review and makes the process easier to defend later.
• CV-squared deals: reconcile the first CV's adjustments and plan with actual results before discussing the new price.
• Everyone: treat net debt and deferred items as part of the price, not as a closing detail.

This note is general information, not advice on a specific transaction.