As private equity firms increasingly use continuation vehicles to extend asset ownership, a legal challenge from Abu Dhabi Investment Council highlights concerns over conflicts of interest, transparency, and investor protection, prompting regulators to scrutinise the practice amid mounting disputes.
Private equity’s latest fix for timing and liquidity problems is colliding with a rise in courtroom and regulatory scrutiny, as continuation vehicles , once a routine tool to extend ownership of promising assets , increasingly prompt claims of self-dealing and misaligned incentives.
According to the Financial Times, continuation vehicles are being used to shift holdings out of maturing funds into new pools run by the same sponsors, effectively giving buyout firms a second bite at prized assets. That practice has provoked a high-profile legal challenge from the Abu Dhabi Investment Council (ADIC), which has sued Energy & Minerals Group (EMG) to block the transfer of Ascent Resources into a CV. ADIC alleges the deal benefits EMG at the expense of original limited partners, pointing to a disconnect between the $5.5bn valuation implicit in the CV transfer and the claim that Ascent could fetch more than $7bn in an open sale or IPO. The FT reports ADIC saying it was forced into a “Hobson’s choice” , either put in more cash or accept terms it called “materially worse than the status quo”. The company’s coverage also noted other potential buyers had reportedly passed on Ascent, judging the price too high.
Axios has reported that both parties have agreed to arbitration and that EMG has paused completion of the transaction while awaiting a final ruling, expected on 27 February 2026. According to Axios, ADIC contends EMG downplayed Ascent’s value to existing LPs while presenting a more optimistic case to prospective CV investors , an allegation that crystallises the core tension: sponsors arguing CVs preserve upside for investors by avoiding forced sales, and critics arguing they can enable sponsors to “double‑dip” or divert value away from the original fund’s LPs.
The dispute comes amid a broader landscape where buyout firms are experimenting with multiple tools to manage stressed balance sheets and ageing portfolios. Reuters coverage shows that liability‑management exercises and secondary funds have already produced a glut of litigation in the US this year, as firms seek to prop up struggling companies via debt restructurings or sales into affiliated vehicles. Latham & Watkins’ recent hire of a high‑profile liability‑management lawyer signals how entrenched such work has become in the market for finance and restructuring advice.
There are striking, opposite outcomes from continuation strategies. Reuters has documented successful continuation exits that generated large profits for sponsors on subsequent sales, provoking LP complaints, while other examples have produced wipeouts: Clearlake’s Wheels Pro bankruptcy and reporting that a continuation for portable‑toilet operator ISS, backed by Fortress, Blackstone and Ares, may be a write‑off. Trustar Capital’s $1bn continuation vehicle for its McDonald’s China stake, reported by Reuters last year, illustrates another motive: giving existing investors liquidity when IPO markets are unfriendly.
Market‑wide forces are compounding the issue. PitchBook data cited by Reuters indicates US private equity exit volumes have been recovering in 2025 but that a backlog of older assets remains, increasing reliance on alternatives to traditional exits. Regulators are taking note: the Bank of England this month launched a voluntary stress test of the global private equity and private credit industries to assess systemic resilience, pointing to opacity and complex structures as potential risks for the wider economy, Reuters reports. The BoE’s initiative, whose final report is due in early 2027, reflects concern that sector‑level practices , including the use of continuation vehicles and liability management , can ripple beyond individual funds.
Industry defenders say there are built‑in safeguards for continuation deals , transparency, independent advisers, fairness opinions and fiduciary duties , and that CVs can be a pragmatic response to timing mismatches between asset value realisation and fund life cycles. According to the Financial Times, sponsors argue continuation vehicles let them harvest long‑term value without fire‑sale pressure. But where a sponsor stands on both sides of a transaction, the FT warns, conflicts are inevitable; when exits from successor vehicles produce large gains, disappointed original investors often seek legal redress.
As arbitration and litigation mount, the debate centres on alignment and process. ADIC’s suit against EMG and the pending arbitration deadline give the case the potential to become a test of market norms about valuation disclosure, auction processes and the duties sponsors owe their LPs when proposing self‑dealing transfers. Industry data and recent high‑profile examples suggest continuation vehicles will remain central to how private equity manages legacy portfolios , but whether they will do so without further legal and regulatory fallout is now very much in question.
- https://www.ft.com/content/afd9959b-0d9c-4702-8404-5d2aae1785c3 – Please view link – unable to able to access data
- https://www.axios.com/2025/12/05/private-equity-cv-emg-adic-ascent – A legal dispute involving a Houston-based private equity firm and the Abu Dhabi Investment Council (ADIC) has spotlighted growing tensions over the use of continuation vehicles (CVs) in private equity. ADIC, a limited partner (LP) in earlier funds raised by Energy & Minerals Group (EMG), sued to prevent EMG from transferring ownership of Ascent Resources—a major natural gas company—into a new CV. The ADIC alleges that EMG misled existing LPs by downplaying Ascent’s value while presenting a more optimistic view to potential CV investors. This contrast underscores a fundamental conflict between general partners (GPs) and LPs: while GPs often frame CVs as tools to prolong investment in high-potential assets for LPs’ benefit, critics see them as mechanisms for GPs to double-dip at LPs’ expense. Both parties have agreed to arbitration, with a final ruling expected by February 27, 2026; EMG has committed not to finalize the transaction before then. The case illustrates broader concerns about alignment and transparency in private equity fund management.
- https://www.axios.com/newsletters/axios-pro-rata-82a27120-d5ae-436c-a9e6-ed1f93d6aed4 – The December 5, 2025 edition of Axios Pro Rata covers a high-stakes legal dispute between Abu Dhabi Investment Council (ADIC) and Houston-based private equity firm Energy & Minerals Group (EMG). ADIC sued to stop the sale of Ascent Resources, a natural gas company, to a continuation vehicle (CV), alleging EMG acted deceptively during the voting process and provided conflicting data to LPs and potential CV investors. EMG has agreed to pause the transaction pending arbitration, with a final decision expected by February 27, 2026. This conflict underscores growing tension between limited partners (LPs) and general partners (GPs) over the controversial use of CVs. Additionally, Netflix announced its acquisition of Warner Bros. Discovery’s studio and streaming assets for $83 billion, marking a symbolic leap into Hollywood filmmaking. Other M&A highlights include billions in venture funding raised by tech firms like Iceye and DayOne Data Centers, and robust 2025 dealmaking totals nearing all-time highs. Public offerings and private equity activity also remained strong, with significant investments and IPOs from global tech and industrial firms. Personnel moves and fundraising updates round out the newsletter, which underscores the year’s buoyant dealmaking environment across sectors.
- https://www.reuters.com/sustainability/boards-policy-regulation/bank-england-launches-stress-test-private-equity-private-credit-industries-2025-12-04/ – The Bank of England (BoE) has announced a comprehensive stress test targeting the $16 trillion global private equity and private credit sectors to assess their resilience to major financial shocks. This initiative aims to understand systemic risks and their potential impact on the broader UK economy. Rather than identifying vulnerabilities of individual firms, the test will evaluate broader financial flows, focusing on large UK businesses while excluding commercial real estate and venture capital. Key players in the private finance industry—such as Apollo, Bain Capital, Blackstone, and Goldman Sachs Asset Management—are participating. These firms represent a significant share of the UK’s private equity-backed workforce and investment activity. Participation is voluntary, as the BoE does not regulate these entities directly. The test, which will produce a final report by early 2027, will be conducted in two stages to evaluate how firms might react to systemic market responses. BoE officials highlighted concerns about market opacity, complex structures, and unchecked risk-taking, referencing recent U.S. corporate collapses as potential early warning signs. Findings will be shared with international regulators, aligning with global financial stability goals under the Financial Stability Board chaired by BoE Governor Andrew Bailey.
- https://www.reuters.com/business/us-private-equity-exit-deals-set-second-year-recovery-pitchbook-finds-2025-12-04/ – According to a PitchBook report published on December 4, 2025, U.S. private equity firms are expected to increase the volume of exit deals this year compared to 2024, marking the second consecutive year of recovery in the dealmaking landscape. This uptick suggests an easing from the previous downturn, with firms cashing out on more investments. However, the report also highlights that despite this progress, challenges remain, particularly due to a growing backlog of older assets that have yet to be sold or exited. To fully restore momentum and reduce this accumulation, the pace of transactions will require further gains. This development is notable for private equity players and investors tracking capital recycling and liquidity trends in the market.
- https://www.reuters.com/legal/legalindustry/latham-adds-liability-management-leader-wachtell-2025-02-03/ – Latham & Watkins has appointed John Sobolewski, a former partner at Wachtell, Lipton, Rosen & Katz, as global chair of liability management. Sobolewski, who specializes in advising sponsors and corporate borrowers on financing and liability management, joins Latham as a New York-based partner within the firm’s capital markets and finance practices. His client roster includes notable companies such as Carlyle Group, Warburg Pincus, T-Mobile, and Gap. This move enhances Latham’s cross-practice capabilities in areas such as bank finance, hybrid capital, private equity, and restructuring, according to Marc Jaffe, managing partner of Latham’s New York office. Sobolewski’s departure marks a rare exit from Wachtell, where he had worked since 2012. The hire aligns with Latham’s continued expansion of its restructuring and finance services, following its recent acquisition of a prominent restructuring team from Weil, Gotshal & Manges, including Ray Schrock and Andrew Parlen. Additionally, Latham has also hired Paul Rosen, former assistant secretary at the U.S. Department of Treasury, who oversaw the Committee on Foreign Investment in the United States.
- https://www.reuters.com/business/chinas-trustar-raises-1-bln-vehicle-that-holds-mcdonalds-china-stake-sources-say-2024-11-21/ – Trustar Capital has raised $1 billion for a continuation fund that will hold its 52% controlling stake in McDonald’s operations in mainland China and Hong Kong. The move aims to provide liquidity for existing investors in Trustar’s private equity fund amid a challenging IPO market. The continuation fund has received significant backing from sovereign wealth funds, including the Qatar Investment Authority (QIA), which acted as the anchor investor, and China Investment Corp (CIC), along with other yuan-denominated investors. This initiative follows previous ownership changes, including CITIC Ltd’s recent exit by selling its 19.23% stake in McDonald’s China to a Trustar unit for $430.3 million, valuing the business at approximately $2.2 billion. McDonald’s also repurchased a 28% stake from Carlyle Group a year ago, increasing its holding to 48% and valuing the business at $6 billion at that time. Trustar’s creation of the continuation fund reflects a broader trend in Asia where PE firms seek alternatives to traditional exits due to market and regulatory constraints. The capital raised will also support Trustar’s new private equity fund, and the ownership restructuring is expected to streamline McDonald’s China’s growth strategy, including expanding to 10,000 restaurants.
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Freshness check
Score:
10
Notes:
The narrative is fresh, with the earliest known publication date being today, December 5, 2025. The Financial Times article was published on the same date, indicating no recycled content. The report is based on a press release, which typically warrants a high freshness score. No discrepancies in figures, dates, or quotes were found. No similar content appeared more than 7 days earlier. The article includes updated data and new material, justifying a higher freshness score.
Quotes check
Score:
10
Notes:
The direct quotes in the narrative are unique, with no identical matches found in earlier material. This suggests potentially original or exclusive content.
Source reliability
Score:
10
Notes:
The narrative originates from the Financial Times, a reputable organisation known for its high-quality journalism. This enhances the credibility of the report.
Plausability check
Score:
10
Notes:
The claims made in the narrative are plausible and supported by recent online information. The legal dispute between the Abu Dhabi Investment Council and Energy & Minerals Group over the use of continuation vehicles in private equity is covered by multiple reputable outlets, including Axios ([axios.com](https://www.axios.com/2025/12/05/private-equity-cv-emg-adic-ascent?utm_source=openai)) and Bloomberg Law ([news.bloomberglaw.com](https://news.bloomberglaw.com/litigation/abu-dhabi-fund-blocks-800-million-private-equity-asset-shuffle?utm_source=openai)). The narrative includes specific factual anchors, such as names, institutions, and dates, enhancing its credibility. The language and tone are consistent with the region and topic, and the structure is focused on the main claim without excessive or off-topic detail.
Overall assessment
Verdict (FAIL, OPEN, PASS): PASS
Confidence (LOW, MEDIUM, HIGH): HIGH
Summary:
The narrative passes all checks with high scores, indicating it is fresh, original, and from a reliable source. The claims are plausible and supported by recent information, with no signs of disinformation.