Sovereign Wealth Fund Sues PE Firm over Continuation Vehicle Process

On November 26, 2025, the sovereign wealth fund, Abu Dhabi Investment Council (ADIC), filed a lawsuit in the Chancery Court of Delaware against Energy & Materials Group LP and several affiliate private investment funds (collectively EMG).^[1] The complaint seeks a preliminary injunction to stop the sale of an EMG portfolio company, Ascent Resources LLC, to a continuation vehicle that is also managed by EMG in a so-called “GP-led secondary” transaction.  ADIC alleges that by selling to a continuation fund, EMG is engaging in self-dealing in breach of its fiduciary duties as manager of the selling private investment fund, in which ADIC is also a limited partner. 

The parties have since agreed to hold the closing of the CV transaction in abeyance while the parties arbitrate the dispute per the limited partnership agreements.  While the outcome remains pending and is likely to be kept confidential, the complaint provides a roadmap of certain specific process foot-faults that sophisticated LPs are now challenging in court.^[2]

Continuation Vehicle (CV) Transactions

A CV (or continuation fund) transaction involves a newly created fund purchasing assets held by an older fund managed by the same private equity sponsor, which allows for existing investors to either cash out or reinvest while the private equity firm continues to hold the assets, effectively extending the life of the investment beyond the original fund’s term.  Continuation vehicles have increased in popularity in recent years due to decreased IPOs and merger activity, leaving private equity firms with fewer exit opportunities.  Indeed, CV transactions accounted for approximately 19% of all private equity asset sales in the first half of 2025, which is a 60% increase over the first half of 2024.^[3]

ADIC v. EMG

ADIC’s complaint alleges that EMG breached its fiduciary duties by undervaluing Ascent Resources and omitting material information.  Specifically, the complaint highlights a lack of information parity, alleging that EMG provided different information to existing investors than was provided to prospective investors in the CV.  ADIC further challenges the transaction’s economic structure.  The complaint argues that requiring rollover investors to pay new fees and carry, without offering an option to roll on existing terms, improperly reallocated value to EMG.

Regulatory Context & Market Standards

The ADIC lawsuit arrives against a backdrop of heightened regulatory focus on CVs.  In recent years, the SEC has aggressively targeted adviser-led secondaries, culminating in the adoption of the Private Fund Adviser Rules, which mandated fairness opinions for such transactions.  Although those rules were subsequently vacated by the Fifth Circuit,^[4]the underlying market dynamics remain unchanged.  Regardless of the regulatory climate, the private funds market is effectively “regulated” by investors themselves, who demand rigorous transparency and fair process as a condition of their capital.

While fairness opinions and third-party auction processes have become customary tools to mitigate conflicts of interest, they are not a substitute for a genuinely transparent and fair process.  As the ADIC complaint demonstrates, the sole presence of these controls may not shield a sponsor if the underlying disclosure or process is flawed.

Closing Thoughts

As this complaint makes apparent, while CV transactions are a vital liquidity tool, successful execution requires navigating inherent conflicts of interest. Accordingly, they are vulnerable to fiduciary claims and the stringent “entire fairness” standard of review, which scrutinizes both price and fair dealing, rather than the more deferential “business judgment” standard.  However, this risk can be mitigated by structuring a process that replicates arm’s length bargaining.  There is no “one size fits all” solution for achieving this; each transaction presents a unique fact pattern regarding valuation, holding periods, and investor expectations.  Consequently, sponsors exploring CV transactions should look beyond rote compliance and focus on tailoring the process to the specific circumstances to satisfy these rigorous standards.  To that end, sponsors should prioritize robust transparency, ensuring the LP base as a whole has access to material information to achieve parity.  Active engagement with the Limited Partner Advisory Committee (LPAC) or key investors early in the process is equally critical to vetting terms and managing conflicts.  While “status quo” options and fairness opinions are powerful mitigants, the ultimate test is whether the sponsor can demonstrate, through a combination of disclosure, engagement, and structure, that the transaction outcome was fair to all stakeholders.

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[1]  Abu Dhabi Inv. Council, PJSC et al. v. Energy & Materials Group et al., No. 2025-1389-NAC (Del. Ch. Nov. 26, 2025).

[2]  Similar litigation was filed in the Southern District of Florida earlier this year but is pending appeal on jurisdictional grounds.  See Dailane Invs. Ltd. v. HIG Cap. LLC et al., No. 25-cv-20568 (S.D. Fla. Feb. 6, 2025) (alleging a claim for aiding and abetting a breach of fiduciary duty against a private equity firm for a CV transaction).

[3]  A. Gara & I. Levingston, Private equity firms flip assets to themselves in record numbers, Financial Times (Jul. 22, 2025), https://www.ft.com/content/88a4e3e3-cefb-48d8-ab81-75cf85039b83.

[4]  Nat’l Ass’n of Priv. Fund Mgrs. v. Sec. & Exch. Comm’n, 103 F.4th 1097 (5th Cir. 2024).