LPs are developing new selection criteria to filter managers. They will actively screen out GPs who lean too heavily on continuation vehicles as a default liquidity solution or who prioritize scaling their own firm's growth through retail capital, due to concerns about conflicts of interest and alignment.

The old VC mindset of "let your winners run" and waiting for an IPO is gone. Today's GPs must act as fiduciaries by creating liquidity plans, proactively orchestrating secondary sales, and navigating complex buyout deals with partial rollovers to generate returns for LPs.

The traditional PE model—GPs exit assets and LPs reinvest—is breaking down. GPs no longer trust that overallocated LPs will "round trip" capital into their next fund. This creates a powerful incentive to use continuation vehicles to retain assets, grow fee-related earnings, and avoid the fundraising market.

A key evolution in private equity is holding top companies beyond the typical fund lifecycle. Continuation vehicles allow firms to retain their "trophy assets," offering liquidity to LPs who want to exit while allowing the firm and other LPs to benefit from continued growth.

Borrowed from private equity, continuation funds allow a GP to move a prized asset from an old fund into a new vehicle they still control. This provides liquidity to LPs in the original fund who can choose to cash out, while others can roll over and continue to ride the winner.

To combat mistrust in CV valuations, LPs are advocating for a concept dubbed 'schmuck insurance.' This mechanism would penalize or claw back economics if a GP sells an asset out of a CV within a short period (e.g., 12 months), undermining the original thesis that the asset required a longer hold for value creation.

General Partners (GPs) have shifted from viewing secondary sales as an LP-driven nuisance to a strategic tool. They now facilitate liquidity for investors to maintain their reputation and use continuation vehicles to retain top-performing assets beyond a fund's original lifespan.

ILPA's CEO reveals a major disconnect: while LPs frequently take liquidity from continuation vehicles (CVs), this action is not a vote of confidence. It's often driven by practical constraints like governance hurdles, short decision timelines, and resource limitations that prevent them from rolling their investment, not a belief in the CV's merits.

The most successful continuation vehicles (CVs) are considered alongside traditional M&A and IPO routes from the outset. Treating a CV as a fallback option when other exits fail can make the deal less attractive to secondary buyers, who scrutinize the narrative and may perceive it as a low-priority opportunity.