Fund Secondaries: LP-⁠Led, GP-⁠Led and Continuation Vehicles

A decade ago, selling a stake in a closed-end fund was perceived as a sign of financial distress: an LP exiting at a discount because it suddenly needed cash. Today it is a routine portfolio-management tool and the largest source of liquidity in private markets, where the time to an actual exit has stretched well beyond a fund's nominal ten-year life. Full-year 2025 secondary volume is estimated at $226–240 billion depending on the methodology used — and both figures are records.

The distinction is between two secondary markets. One is the secondary market in private-company shares, where an investor buys an interest in SpaceX or OpenAI from an employee or an early angel. The other is the secondary market in fund interests: what changes hands is an LP position in a private fund, together with all associated rights and obligations.

Fund-interest secondary transactions are divided into two types. An LP-led deal is initiated by the investor: it sells its interest and exits. A GP-led deal is initiated by the manager: it moves assets from an old fund into a new one and puts existing investors to an election. In the first case the GP controls admission to the transaction; in the second it acts for both parties to the transaction. That is the source of the conflict of interest that market practice over the last few years has sought to address.

LP-⁠led: how a fund interest is sold

The buyer takes on not only the funded interest but also the unfunded commitment — the obligation to answer future capital calls. Pricing is struck against NAV as of an agreed reference date (also called the cut-off date), and between that date and closing the price is adjusted for distributions received and for every capital call drawn in the interim.

A fund interest cannot be sold freely. The LPA will almost always require the GP's written consent, often restrict transfers to quarterly dates, allow the GP to demand legal opinions on the buyer's status, and allocate the manager's costs to the seller. Rights of first refusal held by the GP or the other LPs are checked separately. The deal is documented through two instruments: a purchase and sale agreement between seller and buyer, which lists the excluded obligations the buyer does not assume, and a tripartite transfer agreement to which the GP is a party.

The discount to NAV depends on strategy: Jefferies puts average 2025 pricing for LP portfolios as follows.

The spread reflects cash-flow predictability and the quality of the reported mark — where NAV is struck conservatively and corroborated by transactions, the discount is narrow.

GP-⁠led: continuation funds managed by the same GP

A typical situation is that a fund is approaching the end of its term, but one or two assets in the portfolio clearly have not fully realised their potential — they need another three to five years and capital for bolt-ons. It is too early to sell to a strategic buyer, while retaining the assets in the old fund is impossible. A continuation fund (or continuation vehicle, CV) is a new structure managed by the same GP that buys the asset out of the old fund at an agreed price.

The capital comes from dedicated secondaries funds — Lexington, Ardian, StepStone, Coller — and from those LPs in the old fund who choose to stay. Each existing investor faces a mandatory election: cash out at the transaction price, or roll over into the new vehicle. The rollover itself takes two forms — on the CV's new terms, or through a status quo option under which the rolling investor's management fee and carry do not increase and carried interest on its interest does not crystallise. ILPA insists that such an option be offered; in practice, Houlihan Lokey's study of 2024 continuation funds found a true status quo in only about 17% of the vehicles it reviewed, and roughly 90% of LPs ultimately take the cash. Samples differ on this point: William Blair puts the true-status-quo share for the same year at 22%.

CV terms have standardised by 2026.

The management fee here is well below the classic 2% of a primary fund.

The conflict of interest and its management

In a GP-led deal the manager acts for both parties: seller, acting for the old fund, and buyer, acting for the CV. The conflict has three components. Price: mark it too low and the GP benefits new investors at the expense of old ones. Crystallisation: the deal converts the old fund's unrealised gain into real carried interest for the manager, giving the GP a direct cash incentive to get the transaction done. New terms: the CV has its own fees, so a rolling LP risks paying twice for the same asset.

Industry practice addresses the conflict through procedure. The GP takes the deal to the LPAC for formal conflict clearance — ILPA's view is that this should happen even where the LPA contains an anticipatory waiver, and its final 2026 guidance recommends written notice and supporting materials for the LPAC at least ten business days before the formal CV conflicts-waiver meeting, unless mutually waived; voting timelines should be no less favorable than those in the fund’s LPA. Price is validated externally through a fairness opinion or an independent valuation, and, preferably, through a competitive process with multiple bids. Accrued carry attributable to selling LPs should, on ILPA's recommendation, be reinvested in the new fund.

Regulation and the court test

In August 2023 the SEC adopted the Private Fund Adviser Rules, one of which — the Adviser-Led Secondaries Rule (Rule 211(h)(2)-2) — expressly required a registered adviser to obtain a fairness opinion or valuation opinion for every GP-led transaction and to disclose its material business relationships with the provider of that opinion. On 5 June 2024 the Fifth Circuit, in National Association of Private Fund Managers v. SEC (No. 23-60471), vacated the entire package: the Advisers Act does not give the SEC that authority. The SEC's 2026 rulemaking agenda contains no re-proposal.

The vacatur changed little in practice. A fairness opinion today is a voluntary market standard, and it is supported by three factors. The Advisers Act antifraud provisions are still in force; the LPA and Delaware fiduciary duties apply directly; and ILPA provides industry guidance. Its final recommendations, published on 20 October 2026, supersede the 2023 guidance. Investors should generally have at least 20 complete business days to decide after receiving the final election documents, with full access to the CV data room; complex transactions may need longer. ILPA recommends a competitive auction or independent price validation, supported by an independent fairness opinion or similar assessment, and no aggregate increase in management-fee liability for rolling investors on comparable overall fund economics.

ADIC v. EMG concerned the treatment of the procedure as a mere formality. In December 2025 the Abu Dhabi Investment Council went to the Delaware Court of Chancery to challenge the transfer of a 30% stake in Ascent Resources into a continuation fund: five business days' notice to the advisory boards, with key materials arriving the day before the vote, a refusal to allow an in-camera session, and a mismatch between what the LPAC was shown and what prospective buyers saw. The parties stipulated to a pause until late February 2026 so that an independent arbiter could review the process; EMG went on to close a $1.5 billion Ascent Resources continuation vehicle on 25 March 2026. The dispute was over the process that produced the price, with the existence of a fairness opinion never in question.

The market in numbers

2025 was a record year on both counts.

The gap results from counting methodology; the direction is identical.

The structural shift came in the first half of 2026.

A single-asset CV is the transfer of one, strongest asset; negotiating leverage is moving toward buyers, and further narrowing of discounts should not be assumed.

Assessing fund secondaries for a family office

If the office is already an LP and receives a GP-led proposal, the work starts with valuation. The office should independently estimate the asset's value — even roughly, using multiples — and compare it with the deal price. A fairness opinion should be assessed as evidence: who wrote it, what relationships with the GP were disclosed, and whether there was a competitive process all matter. The assessment then addresses three questions: who pays the transaction costs (often the fund itself, which means the LPs); how the CV's new terms differ from the old ones and whether a status quo option is offered; and what unfunded commitment a rollover brings with it. Separately, the election window: less than a few weeks alongside a data room with limited information is a warning sign.

If the office comes in as a buyer, secondaries solve two problems. They shorten the J-curve: the buyer acquires an already-formed portfolio of known assets, so the early-year trough is compressed and capital comes back sooner. And they give vintage diversification — access to fund years long closed to primary subscription. The corresponding trade-off is information asymmetry: the GP and the seller know more about the asset than the buyer, and in a GP-led deal the seller also runs the business. That is why the NAV discount is the price of risk. Access is typically through specialist secondaries funds or feeder structures and depends on qualified investor status.

A transfer of a fund interest is a transfer of a partnership interest: the buyer's own basis in the interest is what it paid, while the partnership keeps its existing basis in the underlying assets unless a section 754 election is in place (sections 743(a)–(b)), and the allocation of profit across the transaction period is determined by the documents. For US funds, Section 1446(f) applies: a buyer purchasing from a non-US seller must withhold 10% of the amount realized where gain on the disposition would be effectively connected under section 864(c)(8), and the amount realized includes the seller's share of partnership liabilities, so exemption certificates and three years of K-1s are requested well in advance. For tax-exempt investors there is a separate issue — UBTI, where the fund uses leverage.