Introduction

Continuation vehicle (CV) transactions have become a prominent feature of private equity, drawing attention from limited partners, regulators, courts and the financial press. Despite that focus, few have paid adequate attention to the conflicts that may arise due to the transaction structures and how those conflicts implicate fiduciary duties. This article addresses those issues directly, surveying emerging critiques of CVs and a recent Delaware dispute to highlight the fiduciary duty issues that could shape these transactions in the future.

Emerging Critiques of CV Transactions

CV transactions have grown substantially in both number and scale over the past decade, with an estimated $100 billion in these transactions through 2025. This growth has prompted questions about whether CV transactions reflect broader economic inefficiencies in private equity and whether the pursuit of a CV transaction is, at least sometimes, guided by considerations other than maximizing returns for a fund’s original LPs, or whether they are simply another useful tool for sponsors and LPs to extend strong investments. CV skeptics have asked whether the sponsor can be on both sides of the deal—selling the asset from the legacy fund and acquiring it through the continuation vehicle—and have charged that such transactions sometimes use questionable valuations or unrealistic projections that benefit the sponsor to the detriment of the original investors. Proponents argue that these transactions are subject to meaningful market checks and investor protections, including LPAC approval, third-party validation and the ability of investors to exit at a negotiated price.

In addition to defending CV deals as a useful tool for ongoing investment, private equity sponsors have responded to CV critiques by emphasizing procedural safeguards and investor choice. For a conflicted transaction to proceed, fund limited partnership agreements (LPAs) typically require the consent of the LP advisory committee (LPAC). Investors are also able to scrutinize the portfolio company’s financials and assess the cash-out price. Accordingly, proponents of CV transactions argue that if investors do not believe the particular investment presents sufficient upside potential even after the LPAC approves the transaction, they can always cash out.

Historically, investors have appeared to side with the proponents of CV transactions, participating in a significant uptick in deal volume and number and rarely, if ever, challenging CV transactions in court. To the extent there have been disputes, sponsors and dissenting LPs have settled without resort to public litigation. However, recent developments suggest that might be changing. Even with the procedural protections most CVs offer, LPs may be less willing to accept, and more willing to challenge, sponsor-driven secondary transactions that they perceive as unfair even where an LPAC signs off on the transaction.

If LPs become more aggressive in challenging CV transactions, we expect them to rely on a combination of contractual rights and fiduciary principles as the bases for their objections. Contractually, LPs may look to LPAC approval rights, disclosure obligations and consent mechanisms required by fund LPAs to challenge whether the LPAC approval was obtained in accordance with contractual obligations. LPs may also increasingly turn to fiduciary duty principles to challenge CV transactions they believe were structured unfairly or when they believe the sponsor is on both sides of the transaction and is receiving a non-ratable benefit, as we explore below.

Fiduciary Duties in CV Transactions: ADIC v. EMG

When a controlling shareholder stands on both sides of a transaction, Delaware courts typically apply the “entire fairness” standard of review, a fact-intensive inquiry examining both fair dealing (the approval process) and fair price (the economic terms). In a recent first-of-its-kind dispute, an LP argued that this standard should apply in the CV context. ADIC v. EMG, No. 2025-1389-NAC (Del. Ch. Dec. 3, 2025) Dkt. No. 1 (Verified Complaint for Preliminary Injunction in Aid of Arbitration). Abu Dhabi Investment Council (ADIC) filed suit in Delaware against Energy & Minerals Group (EMG) seeking to stay a CV transaction aid in arbitration, as required by the LPA. Although the arbitration was confidential, ADIC’s public filings provide insight into how an LP might challenge an LPAC-approved transaction.

ADIC’s challenge focused on the conflicted nature of the transaction. ADIC alleged that EMG proposed to sell a fund asset to an EMG-sponsored CV and would benefit from the transaction, including through a reset of carried interest and management fees. The transaction offered no true “status quo” option—rolling investors would be subject to the CV’s terms and could not maintain their exposure on the same terms as the legacy fund. EMG also imposed a cap on rolling participation.

Because EMG was on both sides of the transaction, LPAC approval was required under the LPA. However, ADIC alleges this was secured through a flawed process. According to the complaint, EMG rushed an initial failed vote without furnishing key information, then solicited consents individually from LPs, providing inconsistent information to different LPs, discouraging communication among LPs and refusing requests for additional projections. One LPAC member later purportedly rescinded its approval after receiving additional information. Id. Dkt. No. 54 (Brief in Support of Preliminary Injunction).

ADIC also alleged that the disclosures to LPs contained misrepresentations and omissions about the fund asset’s valuation and prospects and were inconsistent with information provided to prospective CV investors.

The parties ultimately stipulated to dismiss the action after an arbitrator found in favor of EMG in a nonpublic proceeding, id. Dkt. No. 60 (Granted Stipulation and [Proposed] Order of Dismissal with Prejudice). The case nevertheless underscores the litigation risk associated with CV transactions and the limits of relying solely on LPAC approval and investor election mechanics to guard against claims of unfairness.

More Robust Procedural Protections May Protect CV Transactions from Scrutiny

ADIC v. EMG suggests that LPAC approval alone may not, in all cases, cleanse conflicts in CV transactions or resolve investor concerns. A motivated LP could argue that LPAC approval was not obtained in accordance with the LPA, rendering it contractually ineffective. Such claims would likely rely on the implied covenant of good faith and fair dealing, arguing that a sponsor cannot obtain LPAC approval through dishonest means and thereby defeat the purpose of that safeguard. The claim might allege that the LPAC’s decision was not fully informed due to withheld information or not independent due to sponsor pressure.

In advancing these arguments, an LP would likely draw on fiduciary duty principles developed in the shareholder litigation context. In that context, a conflicted transaction can be “cleansed” by an informed vote by a majority of disinterested shareholders. Even where such vote is obtained, plaintiffs often challenge it as uninformed. If the LPA does not waive fiduciary duties, a motivated LP could also invoke background fiduciary duty law to seek entire fairness review, forcing the sponsor to argue that such a standard does not apply.

Practical Guidelines for Sponsors

The conflicts that can arise out of continuation vehicle transactions are likely to attract scrutiny from investors, regulators and, increasingly, courts. While ADIC v. EMG did not result in a public merits decision, the allegations and broader Delaware trends highlight several practical considerations related to these transactions:

Assess conflicts early in any potential CV transactions. Sponsors should be aware that these transactions may be evaluated as self-dealing and structure the process accordingly, keeping in mind existing Delaware jurisprudence on controller transactions. Prioritize clear, consistent and timely disclosure. Sponsors should ensure that all material information, particularly regarding valuation, process and sponsor incentives, is disclosed fully and consistently across investor groups, with sufficient time for evaluation. Ensure the investor election is meaningful. The choice between liquidity and rollover should be real in practice. Sponsors should carefully consider whether caps, differential economics or transaction timing could be viewed as pressuring investors toward a particular outcome.
 
Implement a disciplined and well-documented process. LPAC engagement should be structured, timely and supported by adequate information. Sponsors should document decision-making carefully and avoid ad hoc or informal vote solicitation practices that could later be characterized as coercive.

Use independent validation mechanisms where appropriate. Fairness opinions, market checks and disinterested approvals can help support the transaction and are most effective when integrated into a broader, credible process. Although scrutiny of these transactions may be increasing, the collective principles governing their review, including conflict management, disclosure and process, remain familiar.

Private Equity Report Spring 2026, Vol 26, No 1