Continuation Vehicles (CVs) have grown in popularity with private equity (PE) firms as traditional exit routes, such as IPOs and strategic sales, have become unfavorable due to geopolitical turmoil, macroeconomic and AI- driven disruption. However, the same features that make CVs attractive for PE sponsors may also create D&O and E&O exposure, as sponsors typically control key aspects of the transaction, including valuation, process design, and investor disclosures.
As recent developments in the private credit market have shown, concentrated control can attract heightened regulatory scrutiny and give rise to claims that certain investor groups were disadvantaged or that conflicts of interest were not adequately managed. The same concerns are increasingly relevant in the continuation vehicle market, where questions surrounding conflicts, valuation, governance, and disclosures can create potential D&O and E&O exposure.
What Is a CV?
A continuation vehicle is a private equity general partner (GP)-led secondary transaction in which a private equity sponsor transfers one or more portfolio companies from an existing fund into a newly created vehicle that it also manages. Existing limited partners (LPs) are typically given a choice: sell their interests for liquidity or roll over into the new fund, often alongside new investors that provide fresh capital to support the next phase of the assets’ growth.
CVs address a common timing mismatch in private equity: sponsors may believe an asset can create further value, while LPs in older funds may be approaching the end of their investment horizon and seeking liquidity. By creating a “new hold,” sponsors can extend ownership of such an asset without forcing a sale in unfavorable market conditions.
According to Bain & Company’s Private Equity Midyear Report (June 2026), PE firms are holding more than 30,000 unsold portfolio companies. And, on July 7, 2026, the Wall Street Journal reported that nearly 4,000 of these PE assets are older than six years, including roughly 1,500 that have been in portfolios for at least nine years. The WSJ cited a PricewaterhouseCoopers estimate that, at current exit levels, the industry would need approximately nine years to work through its inventory of portfolio companies.
As a result, CVs have emerged to address this backlog by allowing firms to attract new investors while returning capital to existing limited partners. Reflecting the growing importance of CV transactions, a February 20, 2026, PitchBook report found that fund manager-led secondary transactions, of which CVs constitute the majority, reached $106 billion in 2025, placing them on a scale comparable to traditional acquisitions and IPOs.
CV transactions concentrate many of the liability risks that have historically driven litigation and regulatory scrutiny in the private funds industry. They require sponsors to manage conflicts, establish fair valuations, and provide investors with sufficient information to make informed decisions while serving multiple roles in the transaction. As a result, CV transactions may give rise to both investment adviser E&O claims and D&O liability exposure for private equity firms and their directors and officers.
Conflicts of Interest and the Sponsor’s Dual Role
The defining feature of a CV transaction is the sponsor’s dual role. The general partner (GP) represents the selling fund while organizing and often controlling the continuation vehicle acquiring the asset. The sponsor typically continues to manage the portfolio company after the transaction and may benefit from ongoing fees, carried interest, or other economic incentives.
This structure arguably creates conflicts of interest and a potential basis for investor claims. Exiting LPs may argue they sold at an undervalued price, while rolling or new investors may contend they overpaid for an asset the sponsor was motivated to retain. Allegations can be amplified where the sponsor is perceived to have structured the CV to preserve fees, accelerate carry, or otherwise enhance its economics.
E&O claims may focus on whether the sponsor adequately managed conflicts, fulfilled its fiduciary duties, or structured the CV in investors’ best interests. D&O exposure may arise from claims against executives, investment committee members, or directors who approved or oversaw the transaction. As in disputes involving conflicted mergers, related-party transactions, or management buyouts, plaintiffs may frame these allegations as governance and oversight failures rather than simply poor investment outcomes.
In some circumstances, CV transactions may also create D&O exposure at the portfolio company level. Where sponsor-appointed directors participate in approving the transaction, stakeholders may allege that conflicts were not appropriately managed or that fiduciary duties were breached in connection with the transfer.
Valuation Risk
Valuation is another potential source of liability. Unlike traditional sale processes, where competing bids help establish market value, CV transactions are often more limited and sponsor-directed. To address conflict concerns, sponsors commonly obtain fairness opinions, engage independent valuation firms, conduct market checks, or seek LPAC approval.
Even so, valuation disputes may arise when a transaction is judged in hindsight. If the asset performs exceptionally well, former investors may claim it was sold too cheaply; if performance deteriorates, rolling and new investors may argue they overpaid. Plaintiffs might focus on whether alternatives were adequately explored, market testing was meaningful, conflicts were properly managed, and valuation disclosures were sufficient.
These allegations can create exposure under both E&O and D&O policies. Challenges to valuation methodologies, investment decisions, or CV structuring may give rise to asset manager or investment adviser E&O claims. Allegations that directors, officers, or investment committee members failed to exercise adequate oversight, or approved a deal despite known valuation concerns, may also result in D&O exposure. As a result, a single CV transaction potentially could generate claims under both coverage lines.
Regulatory Scrutiny
CV creation requires investors to decide whether to exit or remain invested, making the quality and completeness of sponsor-provided information critical.
Key questions often center on whether conflicts were adequately disclosed, valuation methodologies sufficiently explained, fee and carried interest changes clearly communicated, and investors given enough information and time to evaluate their options.
Regulators have increasingly focused on these issues, particularly in the private funds space. SEC scrutiny of continuation vehicles has emphasized many of the same concerns that arise in private fund examinations and enforcement actions, including conflicts management, valuations, transparency, and investor consent.
These inquiries, investigations, and enforcement actions may create D&O exposure, depending on policy definitions of covered investigations, administrative proceedings, and enforcement actions.
Conclusion
CV disputes can generate overlapping allegations involving conflicts of interest, valuations, disclosures, and fiduciary duties, creating both D&O and E&O risk. Thus, as CVs continue to grow in scale and prevalence, the potential for underwriting exposure may increase, particularly in connection with governance, valuation and disclosure-related issues.