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Private Markets Cert study materials
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Private Markets Cert practice questions

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Question 1Private Markets (general)

In a typical private equity fund structured as a limited partnership, which party bears unlimited liability for the fund's obligations while also managing the fund's investments?

  1. The fund administrator
  2. The limited partners
  3. The placement agent
  4. The general partner Correct answer.

Explanation

The general partner is the entity that manages the fund and typically carries unlimited liability for fund obligations, though this is often mitigated in practice by using an LLC as the GP. Limited partners are passive investors whose liability is capped at their committed capital.

Question 2Private Markets (general)

A private equity fund has committed capital of $500 million and has called $300 million from investors. What is the fund's unfunded commitment?

  1. $200 million Correct answer.
  2. $300 million
  3. $500 million
  4. $800 million

Explanation

Unfunded commitment equals total committed capital minus capital already called. Here $500 million minus $300 million leaves $200 million that investors remain obligated to fund on future capital calls.

Question 3Private Markets (general)

Which return measure is defined as the annualized rate at which all cash flows, including the terminal value, are discounted so that the net present value equals zero?

  1. Multiple on invested capital
  2. Gross asset value
  3. Internal rate of return Correct answer.
  4. Distribution rate

Explanation

The internal rate of return is the discount rate that sets the present value of a series of cash inflows and outflows to zero. It captures both the size and the timing of cash flows, unlike simple multiples.

Question 4Private Markets (general)

A fund reports a gross multiple of 2.0x before fees and carried interest. Which statement best describes what this figure excludes?

  1. The cost basis of portfolio companies
  2. The return of invested capital
  3. The effect of management fees and carried interest Correct answer.
  4. Any realized proceeds from exits

Explanation

Gross multiples are calculated before management fees, fund expenses, and carried interest are deducted. Net multiples, by contrast, reflect what limited partners actually receive after those charges.

Question 5Private Markets (general)

Which characteristic most distinguishes venture capital investing from buyout investing?

  1. Focus on minority stakes in early-stage, high-growth companies Correct answer.
  2. Dependence on dividend recapitalizations
  3. Reliance on leverage to finance acquisitions
  4. Purchase of controlling stakes in mature businesses

Explanation

Venture capital typically takes minority positions in early-stage companies with limited operating history and high growth potential. Buyouts instead acquire control of more mature businesses, often using significant leverage.

Question 6Private Markets (general)

In private markets, 'J-curve' refers to which pattern?

  1. Early negative net returns followed by later positive returns Correct answer.
  2. A decline in returns only after the harvest period
  3. Steady linear growth in NAV over the fund life
  4. A constant IRR across the fund's life

Explanation

The J-curve describes early negative net returns driven by fees and initial write-downs, followed by improving returns as investments mature and exit. The shape resembles the letter J when plotted over the fund's life.

Question 7Private Markets (general)

Which statement accurately describes the role of a fund's limited partner advisory committee (LPAC)?

  1. It selects the fund's auditor and custodian without GP input
  2. It sets the management fee rate charged to the fund
  3. It approves every individual portfolio investment before closing
  4. It reviews conflicts of interest and certain valuation matters referred by the GP Correct answer.

Explanation

An LPAC is composed of investor representatives who advise on conflicts of interest, valuation issues, and other matters the GP refers to it. It does not approve individual deals or set economic terms.

Question 8Private Markets (general)

A private credit fund lends at a floating benchmark rate plus a spread. If the benchmark rises, what happens to the borrower's interest cost, all else equal?

  1. It increases Correct answer.
  2. It decreases
  3. It stays the same
  4. It becomes fixed

Explanation

A floating-rate loan resets its coupon as the benchmark moves, so a higher benchmark raises the interest cost to the borrower. This floating structure is a key feature that can protect lenders from rising-rate environments.

Question 9Private Markets (general)

A fund's management fee is 2% of committed capital during the investment period. On $400 million of commitments, what is the annual fee in dollars?

  1. $2 million
  2. $8 million Correct answer.
  3. $4 million
  4. $80 million

Explanation

The fee is 2% of $400 million, which equals $8 million per year during the investment period. Fees are commonly charged on committed capital early in the fund's life before switching to invested capital.

Question 10Private Markets (general)

Which term describes the contractual right of a fund's largest investors to buy a pro-rata share of another investor's interest before it can be sold to a third party?

  1. Pre-emptive right
  2. Drag-along right
  3. Right of first refusal Correct answer.
  4. Tag-along right

Explanation

A right of first refusal gives existing investors the option to purchase an interest on the same terms before it is offered to outsiders. This protects the investor base from unwanted new entrants.

Question 11Private Markets (general)

In a leveraged buyout, a dividend recapitalization involves which action?

  1. Issuing new debt at the portfolio company to pay a distribution to the sponsor Correct answer.
  2. Refinancing the fund's subscription credit line
  3. Converting sponsor equity into preferred shares
  4. Selling a minority stake to a co-investor

Explanation

A dividend recapitalization raises new debt at the portfolio company and uses the proceeds to pay a dividend to the equity sponsor. It returns capital to investors without a full exit but increases company leverage.

Question 12Private Markets (general)

Which valuation approach estimates a private company's value by applying a multiple derived from comparable public companies to the target's EBITDA?

  1. Replacement cost analysis
  2. Discounted cash flow analysis
  3. Leveraged buyout analysis
  4. Comparable company analysis Correct answer.

Explanation

Comparable company analysis applies trading multiples from similar public firms to a financial metric such as EBITDA. It relies on market-based benchmarks rather than projected cash flows.

Question 13Private Markets (general)

A fund has a carried interest of 20% with an 8% preferred return and a full European-style waterfall. When does the GP begin receiving carried interest?

  1. Only after LPs have received their capital plus the preferred return Correct answer.
  2. Immediately upon each capital call
  3. As each individual investment is realized
  4. At the first closing of the fund

Explanation

In a European-style waterfall, carried interest is calculated at the fund level and the GP only participates after LPs recover capital and the preferred return. This differs from a deal-by-deal American waterfall.

Question 14Private Markets (general)

Which risk is most directly mitigated by a subscription credit line in a private equity fund?

  1. Portfolio company operating risk
  2. Investor default risk on capital calls
  3. The J-curve effect on reported returns Correct answer.
  4. Interest rate risk on portfolio debt

Explanation

Subscription lines allow the fund to delay calling capital from investors, which can smooth and improve reported IRR by shortening the time between contribution and distribution. Critics note this can obscure true performance.

Question 15Private Markets (general)

Which best explains why private market assets are described as illiquid?

  1. They are always valued at zero until exit
  2. They can only be held by individual investors
  3. They cannot be readily sold because there is no active secondary market and sales require GP consent Correct answer.
  4. They trade on exchanges with low daily volume

Explanation

Private assets lack an active public market, and fund interests typically cannot be transferred without GP approval. This limits investors' ability to exit before the fund's term ends.

Question 16Private Markets (general)

A GP uses an American-style waterfall with a 100% clawback. What is the purpose of the clawback provision?

  1. To require the GP to return excess carry if later losses reduce overall fund profits Correct answer.
  2. To allow the GP to reclaim fees from the administrator
  3. To let the GP accelerate carry on early exits
  4. To force LPs to fund additional capital calls

Explanation

A clawback requires the GP to return previously received carried interest if subsequent losses mean the GP was overpaid relative to final fund performance. It protects LPs in deal-by-deal waterfalls where early wins may be offset by later losses.

Question 17Private Markets (general)

Which investor type is typically most constrained from allocating heavily to illiquid private markets because of the need to fund near-term liabilities?

  1. Defined contribution retirement plans with daily liquidity needs Correct answer.
  2. Defined benefit pension plans with long horizons
  3. University endowments with perpetual horizons
  4. Sovereign wealth funds

Explanation

Defined contribution plans generally offer participants daily liquidity, which conflicts with the long lock-ups of private funds. Long-horizon investors such as pensions, sovereign wealth funds, and endowments are better suited to illiquid allocations.

Question 18Private Markets (general)

A fund's DPI is 0.6x and its TVPI is 1.8x. What does the difference between these figures represent?

  1. The management fees charged to date
  2. The fund's gross IRR
  3. The total value of unrealized holdings relative to paid-in capital Correct answer.
  4. The amount of carried interest accrued

Explanation

DPI measures distributions returned to LPs relative to paid-in capital, while TVPI adds remaining unrealized value. The gap between TVPI and DPI therefore reflects the value still held in portfolio companies.

Question 19Private Markets (general)

Which statement best describes co-investment in private markets?

  1. An LP purchases another investor's fund interest on the secondary market
  2. An LP invests directly alongside the fund in a specific deal, often with reduced or no fees Correct answer.
  3. A fund borrows against its unfunded commitments
  4. A GP raises a new fund before the prior fund is fully invested

Explanation

Co-investment lets LPs invest directly in a portfolio company alongside the sponsor, typically with lower or no management fees and carry. It gives LPs deal-level exposure and the GP additional equity for larger transactions.

Question 20Private Markets (general)

A GP charges management fees on invested capital after the investment period rather than on committed capital. What is the primary effect compared with charging on committed capital?

  1. Fees are charged only at final closing
  2. Fees decline as investments are exited Correct answer.
  3. Fees are eliminated during the harvest period
  4. Fees increase as commitments grow

Explanation

Basing fees on invested capital means the fee base shrinks as portfolio companies are sold, reducing fees over the harvest period. This structure better aligns fees with capital actually at work.

Question 21Private Markets (general)

During due diligence on a private credit fund, an investor focuses on the portfolio's weighted average EBITDA and loan-to-value ratios. Which risk is the investor primarily assessing?

  1. Credit risk of the underlying borrowers Correct answer.
  2. Interest rate duration risk
  3. Fund-level liquidity risk
  4. Currency translation risk

Explanation

EBITDA levels and loan-to-value ratios indicate borrowers' ability to service and collateralize debt, which are core measures of credit risk. These metrics help assess expected default and recovery outcomes.

Question 22Private Markets (general)

In a secondaries transaction, a 'stapled secondary' typically involves which structure?

  1. An investor sells a fund interest and simultaneously commits capital to a new fund managed by the same GP Correct answer.
  2. An LP transfers its interest at a discount to NAV without GP involvement
  3. An investor sells only a portion of a single fund interest
  4. A GP sells portfolio companies directly to another sponsor

Explanation

A stapled secondary pairs the sale of an existing fund interest with a commitment to a new fund from the same sponsor. The staple gives the GP new capital and incentivizes cooperation with the secondary buyer.

Question 23Private Markets (general)

A fund reports a net IRR of 12% while its gross IRR is 18%. Which factor most plausibly explains the gap?

  1. Management fees, fund expenses, and carried interest reduce LP returns Correct answer.
  2. The benchmark interest rate declined
  3. The fund holds only unrealized investments
  4. The fund uses a European-style waterfall

Explanation

Net IRR is calculated after deducting management fees, fund expenses, and carried interest, while gross IRR is calculated before these charges. The difference between the two reflects the cumulative cost of these items to LPs.

Question 24Private Markets (general)

An LP is evaluating two funds with identical TVPI but different DPI. Fund A has a DPI of 1.5x and Fund B has a DPI of 0.4x. What is the most defensible interpretation?

  1. Fund B has generated higher gross returns than Fund A
  2. Fund A has a lower IRR than Fund B by definition
  3. The two funds have identical risk profiles
  4. Fund A has realized more of its value, while Fund B's value is largely unrealized and less certain Correct answer.

Explanation

DPI measures cash actually returned, so a higher DPI indicates more value has been realized and is less dependent on valuation estimates. Fund B's value is mostly unrealized, making it more sensitive to future exit outcomes.

Question 25Private Markets (general)

A GP proposes to value an unlisted portfolio company using the price of a recent financing round led by a new investor. Which concern is most relevant to an LP reviewing the valuation?

  1. The valuation must equal the company's book value
  2. The round price cannot be used if the company is unprofitable
  3. The round may include liquidation preferences or structural terms that make the headline price unrepresentative of common equity value Correct answer.
  4. Recent financing prices are always the most reliable measure of fair value

Explanation

Financing round prices can embed preference stacks, ratchets, or other terms that distort the implied value of common equity. Valuers must consider capital structure and calibrate the price to the specific instrument being valued.

Question 26Private Markets (general)

A private equity fund holds its final closing at $500 million of commitments. Which figure represents the capital that LPs have contractually agreed to provide over the fund's life?

  1. $500 million of committed capital Correct answer.
  2. The fund's net asset value at year five
  3. The fund's reported gross asset value
  4. The cumulative invested capital at cost

Explanation

Committed capital is the total amount LPs pledge at closing, which the GP may call down over the investment period. NAV, invested cost, and gross asset value are point-in-time measures of deployed or valued assets, not the pledge itself.

Question 27Private Markets (general)

Which document sets out the governing terms of a private capital fund, including its investment strategy, fee arrangements, and LP rights?

  1. The limited partnership agreement Correct answer.
  2. The side letter
  3. The subscription agreement
  4. The private placement memorandum

Explanation

The limited partnership agreement is the constitutional document of the fund and governs economics, governance, and investor rights. The PPM is a marketing and disclosure document, the subscription agreement is the LP's application to invest, and side letters modify terms for specific investors.

Question 28Private Markets (general)

An LP wants exposure to a private equity fund's deals but does not want to commit capital to a blind pool over a ten-year term. Which approach most directly meets this preference?

  1. Subscribing to a fund with a longer investment period
  2. Buying a diversified secondaries position
  3. Committing to a fund of funds
  4. Co-investing alongside the GP on a deal-by-deal basis Correct answer.

Explanation

Co-investment lets an LP commit to specific transactions as they arise, so capital is not pledged to a blind pool. Fund of funds, secondaries, and longer-dated blind pools all still involve commitments made before the underlying assets are known.

Question 29Private Markets (general)

Which return measure captures cash actually distributed to LPs relative to paid-in capital, ignoring unrealized holdings?

  1. PME
  2. TVPI
  3. Gross IRR
  4. DPI Correct answer.

Explanation

DPI, or distributions to paid-in capital, divides cumulative distributions by paid-in capital and therefore reflects only realized cash. TVPI includes unrealized value, gross IRR ignores fee drag, and PME benchmarks returns against a public index.

Question 30Private Markets (general)

In a private credit fund, which feature most directly protects lenders by restricting how much debt can be layered ahead of or alongside the fund's loan?

  1. A revolving credit facility at fund level
  2. A payment-in-kind toggle
  3. An original issue discount
  4. A covenant package with leverage and lien tests Correct answer.

Explanation

Covenants such as leverage ratios and lien restrictions contractually limit additional indebtedness that could dilute recovery. PIK features, OID, and fund-level facilities affect economics or liquidity but do not constrain the borrower's seniority structure.

Question 31Private Markets (general)

A private equity fund's investment period ends, and the GP begins charging fees on invested capital rather than commitments. What is the primary effect for LPs?

  1. Fees fall because the fee base excludes undrawn commitments Correct answer.
  2. Fees convert into carried interest
  3. Fees rise because deployed capital exceeds commitments
  4. Fees are unchanged because the rate stays constant

Explanation

Switching the fee base to invested capital removes undrawn commitments from the calculation, so management fees decline as the fund moves into its harvest phase. The percentage rate is unchanged, but the base shrinks.

Question 32Private Markets (general)

Which investor category typically faces the tightest liquidity and duration constraints when allocating to closed-end private funds?

  1. Sovereign wealth funds
  2. Family offices
  3. Corporate pension plans with mature liabilities Correct answer.
  4. Endowments with perpetual horizons

Explanation

Mature defined benefit plans must fund near-term benefit payments and therefore limit long-duration illiquid commitments. Sovereign funds, family offices, and perpetual endowments generally have longer horizons and greater tolerance for illiquidity.

Question 33Private Markets (general)

Which statement best describes the purpose of a key person clause in a private fund?

  1. It suspends the investment period if named executives leave the firm Correct answer.
  2. It requires LPs to approve every portfolio investment
  3. It fixes the management fee for the fund's life
  4. It sets the maximum fund size the GP may raise

Explanation

A key person clause pauses new investment activity when specified individuals depart, giving LPs a chance to reassess. It addresses manager continuity rather than investment approvals, fund size, or fee levels.

Question 34Private Markets (general)

A buyout fund acquires a company for $600 million using $300 million of equity and $300 million of debt. If enterprise value rises 20% and debt is unchanged, what is the approximate equity multiple?

  1. 1.8x
  2. 1.2x
  3. 1.4x Correct answer.
  4. 2.0x

Explanation

Enterprise value rises to $720 million; subtracting $300 million of debt leaves $420 million of equity against $300 million invested, or 1.4x. Leverage amplifies the 20% enterprise value gain into a 40% equity gain.

Question 35Private Markets (general)

An LP is comparing two buyout funds. Fund A targets 15% net IRR with 2.0x leverage at entry, while Fund B targets 15% net IRR with 3.5x leverage at entry. Which risk is most elevated in Fund B?

  1. Interest coverage and refinancing risk Correct answer.
  2. Style drift risk
  3. Key person risk
  4. Currency translation risk

Explanation

Higher entry leverage raises fixed interest obligations and the size of debt maturities to be refinanced, increasing default and refinancing risk. Currency, key person, and style drift risks are not directly determined by leverage at entry.

Question 36Private Markets (general)

A secondaries buyer acquires an LP interest at a 15% discount to reported NAV. Which factor most justifies that discount?

  1. The underlying fund is listed on an exchange
  2. The reported NAV may lag fair value and lacks a competitive sale process Correct answer.
  3. The buyer receives a management fee rebate
  4. The seller retains carried interest on future gains

Explanation

Stale or GP-marked valuations and the absence of a broad auction lead buyers to demand a discount for valuation uncertainty and illiquidity. Fee rebates, retained carry, and exchange listings are not standard features of such transactions.

Question 37Private Markets (general)

A private credit fund reports a portfolio company whose EBITDA has declined 25% while its loan remains at par on the fund's books. Which action best reflects sound valuation practice?

  1. Increase the mark because the yield on the loan has risen
  2. Mark the loan down to reflect deteriorated credit and recovery prospects Correct answer.
  3. Defer any adjustment until the loan is formally restructured
  4. Maintain par because the loan is still performing contractually

Explanation

Fair value should reflect current credit conditions, including weaker earnings and expected recovery, not merely contractual payment status. Holding at par, marking up for higher yield, or waiting for a formal restructuring misstates risk to investors.

Question 38Private Markets (general)

A fund's waterfall includes a preferred return of 8% and a GP catch-up of 100% until the GP has received 20% of profits. After LPs receive their 8% preference, what happens during the catch-up?

  1. Proceeds are held in escrow until the fund's final liquidation
  2. The GP receives nothing until all capital is returned
  3. LPs and the GP split proceeds 80/20 immediately
  4. The GP receives all proceeds until it reaches 20% of cumulative profit Correct answer.

Explanation

A full catch-up directs all distributions to the GP until it has caught up to its 20% share of total profits, after which the 80/20 split applies. This restores the intended incentive balance after the preferred return is satisfied.

Question 39Private Markets (general)

An LP reviews a fund's quarterly report and notices that unrealized value rose sharply after a single new co-investor paid a higher price for a small stake. Which concern is most relevant?

  1. The mark may reflect a minority transaction price that is not representative of fair value Correct answer.
  2. The fund's management fee will be recalculated upward
  3. The fund has breached its concentration limit
  4. The GP has failed to call capital on schedule

Explanation

A small minority stake sold at a premium may embed control or strategic premiums and illiquidity assumptions that do not apply to the whole position. Valuation policy should weigh calibration against such transactions rather than adopt them mechanically.

Question 40Private Markets (general)

Which term describes the period during which a private equity fund may call capital to make new investments?

  1. The extension period
  2. The harvest period
  3. The investment period Correct answer.
  4. The liquidation period

Explanation

The investment period, typically five years, is when the GP may call commitments for new deals. The harvest period follows it, extensions require LP consent, and liquidation is the wind-down of remaining assets.

Question 41Private Markets (general)

A fund of funds charges LPs a 1% management fee on top of the underlying funds' fees. Which effect does this layered fee structure have on reported performance?

  1. It widens the gap between gross and net returns Correct answer.
  2. It raises gross IRR but leaves net IRR unchanged
  3. It eliminates carried interest at the underlying fund level
  4. It converts unrealized gains into realized gains

Explanation

Layering a fund-level fee on top of underlying fund fees increases total costs borne by the LP, so net returns fall further below gross returns. Gross IRR is unaffected by fees, and the structure does not change underlying carry or realization status.

Question 42Private Markets (general)

An infrastructure fund holds a regulated utility with inflation-linked tariffs and 80% contracted revenues. Which characteristic of private markets does this asset most clearly demonstrate?

  1. Dependence on early-stage technology adoption
  2. Predictable long-duration cash flows suited to liability matching Correct answer.
  3. High correlation to public equity markets
  4. Rapid liquidity through secondary trading

Explanation

Regulated, inflation-linked, largely contracted revenues produce stable long-dated cash flows that appeal to investors matching long liabilities. Such assets are illiquid and low-correlation rather than equity-like or technology-dependent.

Question 43Private Markets (general)

A GP raises a continuation fund to hold two portfolio companies from an expiring fund. Which statement best describes the transaction?

  1. The transaction requires no independent valuation
  2. Existing LPs must roll all holdings into the new vehicle
  3. The new fund must liquidate the assets within one year
  4. Existing LPs may sell at a negotiated price or roll into the new fund Correct answer.

Explanation

A continuation fund gives existing LPs a choice between liquidity at a negotiated price and rolling into the new vehicle. Independent valuation and LPAC involvement are typical safeguards, and there is no one-year forced liquidation.

Question 44Private Markets (general)

Which measure adjusts a fund's return for the timing of cash flows and is therefore preferred when capital is called gradually over several years?

  1. Internal rate of return Correct answer.
  2. Simple average of annual returns
  3. Multiple on invested capital
  4. Gross asset value

Explanation

IRR accounts for the size and timing of each cash flow, which matters when capital is drawn down over time. A simple average ignores timing, MOIC ignores duration, and gross asset value is a valuation, not a return.

Question 45Private Markets (general)

A private credit fund's loans carry a 3% floor on a floating benchmark that currently sits at 2%. What is the effect on the fund's income if the benchmark falls to 1%?

  1. Interest income remains at the floor rate Correct answer.
  2. Interest income falls to zero
  3. Interest income rises because spreads widen
  4. Interest income falls by two percentage points

Explanation

The floor sets a minimum benchmark rate of 3%, so a decline from 2% to 1% leaves the applicable rate at the floor and income unchanged. Floors protect lenders in low-rate environments.

Question 46Private Markets (general)

An LP is negotiating a most-favored-nation clause in a side letter. What does this provision provide?

  1. A guarantee of a minimum net IRR
  2. The right to co-invest in every deal the fund makes
  3. Priority in receiving distributions
  4. Assurance of terms at least as favorable as those granted to comparable investors Correct answer.

Explanation

An MFN clause lets an investor elect more favorable economic or governance terms later granted to similarly situated investors. It does not promise deal access, return guarantees, or distribution priority.

Question 47Private Markets (general)

A GP calculates carried interest on a deal-by-deal basis without a loss carryforward. Which risk does this create for LPs?

  1. The GP may receive carry on winning deals while later losses reduce LP capital Correct answer.
  2. The GP will receive no carry until the fund is fully liquidated
  3. The GP's fee base will be reduced by realized losses
  4. The GP must return all distributions at final closing

Explanation

Without an interim loss carryforward, early gains can generate carry even if subsequent deals lose money, leaving LPs to absorb the shortfall. Clawback provisions may partially address this but are weaker protection than a loss carryforward.

Question 48Private Markets (general)

An LP models a fund with a 2% fee on commitments for five years and 2% on invested capital thereafter. Why does the fee base switch matter more for a slow-deploying fund?

  1. Committed capital declines as deals are completed
  2. The switch eliminates carried interest for slow funds
  3. Slow deployment means invested capital stays well below commitments, so the switch cuts fees sharply Correct answer.
  4. Slow deployment causes the fee rate to increase automatically

Explanation

If a fund deploys slowly, a large share of commitments remains uncalled, so moving the fee base to invested capital removes more fee-paying balance than it would for a fast-deploying fund. The rate itself does not change, and carry is unaffected.

Question 49Private Markets (general)

Two funds report the same 18% net IRR. Fund A returned cash steadily each year, while Fund B returned almost everything in a single large distribution at the end. Which conclusion is most defensible?

  1. The two funds delivered identical value to LPs because IRR matches
  2. IRR cannot be compared across funds with different distribution timing
  3. Fund A's earlier cash flows can be reinvested, so its effective outcome for LPs is likely better Correct answer.
  4. Fund B is superior because it compounded capital for longer

Explanation

IRR assumes reinvestment at the IRR itself, so a fund returning cash earlier gives LPs the option to redeploy it sooner. Equal IRRs therefore do not imply equal outcomes when distribution timing differs.

Question 50Private Markets (general)

A buyout GP proposes to hold a portfolio company indefinitely in a continuation vehicle and to set the transfer price using its own most recent internal mark. Which governance safeguard most directly addresses LP concerns?

  1. A higher management fee on the new vehicle
  2. An independent valuation or fairness opinion plus LPAC review Correct answer.
  3. A longer investment period for the continuation fund
  4. A waiver of the LPAC's conflict-review role

Explanation

Because the GP sits on both sides of the transaction, an independent valuation and review by the LPAC provide the key check on pricing and process. Higher fees, longer periods, or removing LPAC review would worsen rather than mitigate the conflict.