Private Fund Conflicts Put LPAC Consent and Pricing on Record

When a private equity manager moves an asset from an older fund into a new vehicle it will also manage, the transaction can give existing investors a choice: take cash or keep exposure. The manager, however, has an interest on both sides. A higher price helps the selling fund; a lower price can favour the new vehicle. A signature from an investor committee cannot, by itself, show that the manager treated both groups fairly.

That is the practical intersection of the Financial Conduct Authority's 23 October review of conflicts in private markets and the Institutional Limited Partners Association's 2026 continuation-vehicle guidance. The FCA describes the controls it observed at selected firms and the standards it expects them to consider. ILPA, an investor association, proposes voluntary process practices for general partners (GPs) and existing limited partners (LPs). Its guidance was developed primarily for closed-end private equity funds. It may inform other asset classes, but its stated scope is narrower than the FCA review's coverage of private equity, private credit and real estate. The documents are different in authority, but together they put a concrete question to a UK manager: what evidence existed before investors were asked to waive a conflict or choose whether to sell or roll?

A waiver is not the control

The FCA's review covered UK firms managing or advising on private equity, private credit and real estate. It used a questionnaire sent to a sample of firms, followed by visits to a selected group. Its finding that only 52% of firms said internal audit reviewed their conflicts framework concerns the phase-one questionnaire respondents. It is not an estimate of the proportion across the UK private-markets industry.

For transfers between funds and continuation vehicles, the FCA found stronger firms used enhanced governance, independent challenge, valuation oversight and investor engagement. Weaker arrangements leaned on existing approvals, disclosure or consent while offering little evidence that competing investor interests had been balanced. In one case described by the regulator, a firm sold an asset to an internal fund at net asset value after receiving outside interest, yet could not explain why it had not pursued that interest or why the price served the selling fund.

The regulatory foundation already exists. FCA Handbook SYSC 10.1.24R requires an alternative investment fund manager to take all reasonable steps to avoid conflicts and, where they cannot be avoided, to manage, monitor and, where applicable, disclose them to protect its funds and investors and ensure the funds are fairly treated. The applicable requirements depend on the firm's activities and permissions. The FCA review is supervisory feedback on practice, not a new blanket rule requiring every continuation deal to use a particular auction, valuation or timetable.

Show how the price was tested

The core problem is more specific than whether a valuation document exists. The FCA observed that stronger firms separated buy-side and sell-side decision makers and, in some cases, commissioned different independent valuations for the two funds. Weaker firms sometimes used the same valuation and substantially overlapping committees on both sides. A third-party figure could support a decision, but the regulator found limited evidence that it cured a conflict where decision making remained joined.

ILPA asks GPs to show a competitive auction or other independent third-party price validation, supported by a fairness opinion or similar evidence. Its full guidance allows that a strong competitive process may make a costly fairness opinion unnecessary in a particular case. It also asks for an explanation of the negotiated price against recent holding values, any discount, transaction costs and who bears them. The question for an investor is whether price discovery tested an alternative sale, and whether the terms left selling and rolling LPs with a fair share of value, costs and risk.

For a UK manager, the operational consequence is a record that can be challenged: who proposed the transfer, which external options were considered, who represented each side, how bids or independent comparables were assessed, and why the final price was chosen. That is an inference from the FCA's examples and ILPA's guidance, rather than a prescribed FCA checklist. A valuation produced after the commercial decision, without a record of challenge, may be difficult to reconcile with either document's emphasis on process.

Give the committee a real decision

Limited Partner Advisory Committees (LPACs) are often asked to clear a GP conflict. The FCA cautions that they are an imperfect proxy for all investors: the largest LPs commonly hold the permanent seats, smaller LPs have less direct input, and some firms decide for themselves when to consult the committee. It says consultation with a subset should sit alongside strong governance, oversight and conflict management, rather than become the primary mechanism for a material conflict.

ILPA's voluntary guidance presses for early LPAC engagement, disclosure of each continuation-specific conflict, and explicit approval for each conflict instead of a blanket waiver. It recommends at least 10 business days' notice before a formal waiver meeting unless the parties agree otherwise, and prompt notice of the LPAC decision to all LPs. The GP remains responsible for designing and running a fair process; the LPAC's role is to examine how the GP handled its conflicts, not to negotiate the transaction in its place.

That distinction matters particularly to LPs outside the committee. ILPA calls for a completed disclosure template or equivalent materials to reach all existing LPs before their election period. Its recommended election window is generally at least 20 clear business days from receipt of the final package, with more time for complex deals. These are industry best practices, not FCA mandated periods. Fund documents may set their own contractual procedures, and a manager must assess the rules and obligations that apply to its transaction.

The FCA and ILPA therefore converge on a narrower test than whether consent was obtained. A UK manager should be able to explain the price, show who challenged it independently, document the conflicts put to the LPAC, and give smaller investors enough information and time to weigh cash against continued exposure. Consent is a decision made on that record. It is not a substitute for making one.