ILPA urges greater scrutiny of private equity continuation deals

Major institutional investors are urging greater scrutiny of private equity continuation vehicle transactions due to concerns regarding potential conflicts of interest, according to a Financial Times report. The Institutional Limited Partners Association (ILPA), representing prominent private equity investors, has issued guidance for members of limited partner advisory committees (LPACs) to rigorously examine transactions where fund managers sell portfolio companies to new entities under the same management.

This comes after a surge in continuation vehicles, which constituted roughly one-fifth of private equity exits last year, as buyout firms often retain portfolio companies instead of selling them traditionally.

ILPA cautioned that committee members must possess sufficient experience and preparedness to challenge fund managers rather than automatically approving disclosures related to potential conflicts. The association also pointed out conflicts among LPAC members, particularly in situations where institutions invest in both conventional buyout funds and continuation vehicles.

Notable investment firms such as Hamilton Lane, HarbourVest, and Partners Group operate strategies across both segments, although none has been accused of misconduct.

The ILPA's recommendations follow earlier concerns raised by institutional investors about the adequacy of LPAC oversight, including instances where committee members failed to adequately prepare or delegated responsibilities to less experienced staff. These recommendations reflect mounting pressure for enhanced governance as general partner-led secondaries have become a crucial liquidity source for private equity managers and their investors.