In the past several years continuation funds have become an increasingly common vehicle in private equity (PE), with sales to continuation funds accounting for a record 13% of PE exits globally in 2024, increasing from just 5% in 2021. As these funds become more common, the scrutiny around them increases, and fund managers must carefully evaluate how they price the transactions. Most reputable private fund advisors opt to use a third-party valuation or fairness opinion for continuation fund deals.
Investors, consultants, and fiduciaries still care deeply about transparency and oversight, especially regarding conflicts of interest. Fairness opinions therefore remain a key expectation in today’s private equity world.
What’s a Continuation Fund
Private equity funds run with a contractual timeline, typically 10 to 15 years, but the lifecycle of a portfolio company doesn’t always match that schedule. Sometimes a fund nears its contractual end when a portfolio company still has untapped value, or when markets are not conducive for a successful exit. In those cases, general partners (GPs) may ask investors for more time, often through agreed-upon extensions. When that’s not possible, they may extend their interest in the relevant portfolio companies by moving them into a new continuation vehicle.
This structure gives limited partners (LPs) a choice: take their money and exit the fund or roll their investment into the new fund in the hopes of realizing even higher returns. On the surface, it’s a practical solution. But because the same GP is usually on both sides of the transaction, selling the asset from the original fund and buying it into the continuation fund, the solution creates the potential for conflicts.
If the price is set too low, investors who cash out could be shortchanged, and the GP might benefit from better returns or higher carried interest down the line. If the price is too high, it could inflate performance figures or boost compensation tied to the original fund. Either way, LPs deserve some assurance that the deal is being handled fairly. That’s where third-party opinions come in.
How Private Equity Firms Deal with the Conflict
One way to establish fair pricing is to run a sale/auction process, solicit third party buyers, and sell a stake in the portfolio company or continuation vehicle. Without direct market feedback like this, to ensure fairness in these transactions, GPs will often hire an independent third party to weigh in on the fairness or valuation of any continuation fund deal that gave LPs the option to cash out or roll over. The practice is aimed at giving investors more confidence in how these insider-led transactions are being priced and managed.
Fairness opinions assess whether a price is fair and reasonable from a financial point of view. They tend to be expensive because of the legal liability attached, but they offer strong investor protection. Valuation opinions are less costly and provide a range of acceptable prices, giving some flexibility while still offering outside perspective. Firms will also disclose any relationships between the third-party valuation provider with the original adviser, another way to shine light on potential conflicts of interest.
A recent SEC rule to require these third-party opinions was swiftly overturned, but the market hasn’t simply shrugged and moved on. Institutional LPs and investment consultants still expect managers to follow a high standard when it comes to oversight, especially in deals where interests might not fully align.
Most GPs were already getting fairness or valuation opinions before the rule was put in place, and will keep doing so even without a regulatory mandate. The SEC rule was essentially turning an industry best-practice into a legal requirement, and the loss of the legal requirement did not alter the practice.
The risk of pricing games, self-dealing, and a lack of transparency haven’t disappeared, and investors haven’t relaxed their guard. In the current market, the tools that help keep things above board, like third-party opinions, are still very much in demand.
A Matter of Trust, Not Just Compliance
Getting a fairness or valuation opinion was never just about checking a regulatory box, but about showing investors that a manager takes governance seriously. It’s a way to protect relationships, prevent disputes, and demonstrate that decisions are being made in the investors’ best interest.
In the complex and fast-moving private equity environment, this kind of trust-building matters. These opinions provide an extra layer of assurance, not just for today’s deals, but for the long-term credibility of the firm. For many investors, especially institutional ones, it’s become part of the standard playbook.
Independent validation continues to be a best practice, signaling transparency, integrity, and respect for investor capital. And in private equity, where relationships and reputation are everything, that goes a long way.
