Key Takeaways

  • Former APG private equity head John Renkema argues continuation vehicles create severe governance conflicts that general partners fail to manage properly.
  • GPs treat the decision to roll or sell as a simple binary choice, but rolling forces existing LPs into complex renegotiations over fees, carried interest, and follow-on checks where they hold no bargaining power.
  • Secondary fund buyers negotiate asset pricing and vehicle terms directly with the GP, leaving existing fund investors exposed to unfavorable governance structures.
  • While GPs market CV pricing as the result of competitive auctions, Renkema notes these processes routinely terminate in single-buyer exclusivity rather than presenting LPs with competing offers.

The Illusion of LP Choice

Continuation vehicles have flooded the private equity market. General partners defend them as clean solutions for aging trophy assets. The standard GP narrative is straightforward: if limited partners want liquidity, they take cash; if they still believe in the asset, they roll their stake into the new fund.

Renkema rejects that defense. As former private equity chief at APG, he points out that framing the decision as a simple roll-or-sell binary hides an asymmetric power balance. Rolling over constitutes a multi-dimensional restructuring involving new fee tiers, reset carry hurdles, and future capital requirements.

“GPs say that the conflicts of interest that are being generated by continuation vehicles are best managed by the simple fact that an LP has a choice to either continue their holding through rolling over into the continuation vehicle or take liquidity,” Renkema told Ross Butler. “First of all, that choice is very binary. While the decision to roll over or not, it's got multiple dimensions.”

When an institutional investor evaluates a roll, they enter an agreement where the terms were negotiated by someone else. The lead secondary buyer and the GP determine vehicle terms bilaterally. Existing LPs are presented with a finished package on a strict deadline. “They don't have any negotiation power,” Renkema explained. An LP cannot push back on waterfall resets or governance concessions without sacrificing their participation entirely.

How Exclusivity Breaks Price Discovery

The secondary market promises objective market value through competitive bidding. Sponsors frequently claim that running an auction across multiple secondary buyers validates the exit valuation for the selling fund.

Renkema argues that the mechanics of continuation deals undermine that claim. “Although a GP will always say that they've run a competitive process to come up with a price for a continuation vehicle, it has never led to the LP having choice between two offers in the market,” Renkema observed. “That competitive process somewhere stopped and led to exclusivity and to finalizing the negotiations.”

Once a process grants exclusivity to a single secondary buyer, market tension evaporates. That lead buyer negotiates asset discounts, management fees, and governance structures directly with the sponsor. Because the sponsor has an interest in maintaining asset control and crystallization of carried interest, their incentives align more closely with closing the transaction with the new buyer than with maximizing the terminal valuation for existing LPs. Renkema noted that this structure allows the secondary buyer to “set those terms in such a way that might be unenviable for the existing LPs.”

Why It Matters

Continuation vehicles have shifted from liquidity workarounds into a permanent asset class, but governance rights have not kept pace. The concentration of deal terms between GPs and lead secondary buyers turns existing LPs from governance partners into price-takers. As exit markets remain sluggish, the friction between sponsor-led liquidity and LP portfolio governance will force institutional allocators to discount GP transparency or demand structural consent rights before approving fund restructurings.