Continuation Vehicles In Private Equity: U.S. Dispute Shines A Spotlight On Process

Overview and Key Takeaways

Continuation vehicles (CVs) have become a common investment management device in the private equity (PE) toolkit in recent years. That said, CVs can add additional complexity absent in typical PE transactions, and this requires thoughtful navigation.

A dispute between a sovereign wealth fund and a U.S. PE fund arising from a proposed CV transaction brought before the Delaware courts in December 2025 highlights the friction that can sometimes arise between general partners (GPs) and limited partners (LPs) in connection with CV deals.¹ We review the dispute, its unproven allegations, and the spotlight they shine on process in CV deals.

The Evolution and Benefits of CVs

CVs are a type of GP-led secondary transaction whereby the GP selects one or more assets within a fund to sell or transfer to a new affiliated fund. Existing LPs are given the option to exit at the transaction price or to rollover into the CV. New LPs gain exposure to the asset(s) sold to the CV through investment in the CV.

CVs were historically used to manage underperforming or distressed assets of an otherwise successful PE fund. CVs are now regularly used to extract further value from well-performing assets that would benefit from additional time or capital. LPs are afforded the optionality of immediate liquidity or continued investment in a promising asset. GPs are afforded greater control over portfolio management and exit timing in pursuit of maximizing returns.

Complexities Raised by CVs

The principal complexity raised by a CV deal is the conflict of interest that can arise from the PE sponsor standing on both sides of the transaction. This can raise questions regarding timing, valuation, and fees.

The Institutional Limited Partners Association (ILPA) issued guidance (the ILPA Guidance) for LPs and GPs regarding CV transactions in 2023.² The ILPA Guidance highlights two key challenges of CV transactions for LPs:

• First, that CV deals are "highly complex" and demand a "substantial amount of attention from LPs," including requiring LPs to "make decisions about individual assets, as opposed to PE funds or managers."
• Second, that LPs can "struggle with the speed at which [CV] transactions are run." The guidelines explain that LPs may be asked "to make roll or sell decisions within a period as short as 10 days, during which they must undergo a re-underwriting of the investment that can force LPs into a position to take the liquidity option if the timeline doesn't align with institutional requirements, such as investment committee meetings."

A common way GPs address questions around valuation in a CV transaction is by obtaining a fairness opinion from an independent financial advisor.

The Complaints in the Delaware CV Dispute

In early December 2025, the Abu Dhabi Investment Council (the Investor) sought an injunction from the Delaware Court of Chancery preventing the closing of a CV transaction involving a stake in one of the largest private natural gas companies in the United States.

The PE sponsor (1) offered existing LPs both a cash-out option and rollover option, (2) sought the approval of the fund's limited partner advisory committee (the LPAC), and (3) obtained a fairness opinion regarding the deal price. The Investor's complaint takes issue with these and related aspects of the PE sponsor's CV process. The Investor alleged that:

• Insufficient notice and information were given to LPAC members in advance of the vote on the CV transaction. The Investor claims that only five business days notice was given, that the notice included few details regarding the CV transaction, and that thereafter the information provided came in a piecemeal fashion and as late as the day before the vote.
• The PE sponsor ignored requests from certain LPAC members to delay the vote on the CV transaction. The Investor also claims the PE sponsor refused to allow an in-camera meeting of LPAC members (i.e., without the PE sponsor being present) to discuss the CV transaction in connection with the vote.
• After LPAC approval was not initially obtained, the PE sponsor began bilateral dealings with individual LPAC members, sharing different information with different members. The Investor also claims the PE sponsor (1) sought to prevent LPAC members from directly communicating with each other regarding the CV transaction, and (2) ambiguously left the voting process open to try to convince individual LPAC members to give their approval outside of a collective vote.
• LPAC members had not been given the same information regarding the CV transaction as had been given to prospective investors in the CV. In particular, the Investor claims material inconsistencies between the inventory life of the company's natural gas assets communicated to existing LPs versus to prospective new LPs. The Investor also claims the reliability of the fairness opinion obtained by the PE sponsor was undermined by inaccurate assumptions regarding inventory life provided to the financial advisor.
• The PE sponsor failed to adequately explore alternatives to the CV transaction. The Investor also claims that, while the PE sponsor communicated pessimism to existing LPs regarding the potential for either an IPO or a sale of the company, the PE sponsor communicated optimism to prospective new LPs regarding these possibilities.

The Investor claims the PE sponsor's conflict of interest is exacerbated on two fronts. First, because the PE sponsor stands to invest more of its own money into the CV, making it a "net buyer". Second, because the CV sale price would re-set the PE sponsor's carried interest in a manner making it more likely to gain from the asset's ultimate sale, whereas the PE sponsor currently stands to earn little carried interest from an arm's length sale. The Investor alleges the PE sponsor is therefore incentivized to buy out the current LPs at as low a price as possible.

In total, the Investor alleges the PE sponsor breached its duties of loyalty and candour to its LPs under Delaware law.³ The Investor further alleges the PE sponsor breached a duty under the fund's limited partnership agreement (the LPA) to, when seeking LPAC approval, ensure any such approval is fully informed.⁴ Also notable is that the Investors' complaints take the position that the ILPA Guidance is evidence of "industry standards".

Concluding Comments

It must be stressed that the allegations in the Investor's complaint are only allegations and remain unproven. Also, because the complaint was brought in pursuit of a preliminary injunction in aid of arbitration – the LPA mandates dispute resolution under the rules of the American Arbitration Association – the PE sponsor's counterarguments to the Investor's allegations may never be public.⁵ Nor may any award on the merits, should the dispute proceed to that stage, ever be public.

Nonetheless, the dispute is notable for highlighting potential points of tension between GPs and LPs in connection with CV transactions. It is a helpful reminder that CV deals should be navigated with foresight and care. This is important as we expect CVs to remain a fixture of the PE landscape. They are an innovative tool that provides flexibility for sponsors and optionality for LPs. However, as recently reported by the Wall Street Journal, in an investment environment in which some firms are struggling to sell assets or raise funds, they can also be a means for underperformers to attain a longer runway.⁶

Footnotes

1. Abu Dhabi Inv. Council Co. et al. v. Energy & Minerals Grp. LP et al., No. 2025 1389-NAC (Del. Ch. Dec. 3, 2025). https:/www.documentcloud.org/documents/26341087-adic-vs-emg/

2. See ILPA, Continuation Funds: Considerations for Limited Partners and General Partners (May 2023). – https:/ilpa.org/industry-guidance/principles-best practices/continuation-funds/

3. The Investor's Complaint for a Preliminary Injunction claims that the applicable LPAs do not contain a general disclaimer of the GP's fiduciary duties. Regarding the alleged duty of candour, the Investor's Complaint claims that, while the LPAs allow the GP to carry out conflicted transactions so long as those transactions are approved by the applicable advisory boards, the GP has a duty of candour which requires it to disclose all material information reasonably available to it and avoid speaking falsely when seeking advisory board approval.

4. This allegation is based on the implied covenant of good faith and fair dealing under Delaware law.

5. The parties subsequently agreed to delay the CV transaction until at least late February 2026 to allow review by an independent arbitrator.

6. See Wall Street Journal, "Private-Equity's Consolidation Hopes May Need to Wait Past 2026" (Jan. 4, 2026). – https:/www.wsj.com/articles/private-equitys-consolidation hopes-may-need-to-wait-past-2026-8f204731?mod=private-equity_lead_pos6&tpl=pe