The Status Quo Option Is a Defined Term.

An election form arrives with a confidential disclosure document behind it. Two portfolio companies are moving into a new vehicle managed by the same general partner, and every investor has to say whether it is rolling its interest, selling it, or doing some of each. ILPA's guidance asks that investors get no less than 30 calendar days or 20 business days to answer.

ILPA recommends treating a non-responsive investor as electing liquidity rather than rolling, on the principle that "LPs should never be forced to roll their interests into a new vehicle." That is the right default. It also puts the burden of proof on the decision to stay, against a clock the guidance sets a floor under rather than a ceiling, about a new partnership each rolling investor must compare against its existing agreement and side letter.

What the rolling investors are agreeing to is a different partnership from the one they signed.

The status quo option is four items

ILPA's May 2023 continuation fund guidance defines the protection directly. Rolling investors must be offered participation "with no change in economic terms i.e., a 'status quo' option," set out as four numbered protections: no increase in the management fee rate, no change in the management fee base, no increase to the carried interest rate or decrease to the preferred return hurdle or other changes to the waterfall favouring the general partner, and no crystallization of carried interest for those who roll. The third carries three distinct economics on its own. All four are stated as things that must not get worse.

The next sentence reaches further: rolling investors "should not be disadvantaged relative to their status prior to or absent the transaction." That is the broader claim, and it is the one with no enumeration behind it. None of this binds anyone — ILPA notes its recommendations "may not be universally appropriate or applicable to every circumstance."

A side letter's reach is a drafting question

The status quo definition carries none of an investor's additional negotiated rights by itself. Under ILPA's model partnership agreement, a general partner may enter a side letter "in connection with the admission of such Partner to the Fund," with the effect of "establishing rights under, altering or supplementing the terms of, or confirming the interpretation of this Agreement" — this one, the existing fund's. Whether a particular side letter already reaches a continuation vehicle is a drafting question: one may expressly cover successor vehicles, affiliates or parallel vehicles, and the model's own clause does not.

Where it does not, ILPA recommends carrying the relevant terms through. A rolling investor's side letter terms "should carry over to the continuation fund, either by way of a new side letter specific to the continuation fund or express language in the continuation fund LPA." Two qualifications travel with it: certain provisions "may not be applicable, and these may be negotiated as they occur," and the floor is that "at a minimum, all relevant risk and governance terms should apply." Which provisions are relevant is a judgment made term by term and investor by investor, inside the same window the investor is using to decide whether to roll at all.

The agreement's own succession machinery is not what is running

The partnership agreement does hold a mechanic built for succession, and this is not it. Article 17 of the model governs an investor transferring its interest, and a transferee who meets the conditions is admitted as a Substitute Partner who "shall succeed to all of the rights and obligations of the Transferor, with respect to such Interest." Succession is comprehensive there because the transferee takes a seat under the same agreement. This asset-transfer structure does not invoke Article 17, so none of that provision's succession machinery follows the assets into the new vehicle.

Some of it is disclosed rather than carried

A third group is addressed differently again, and what it describes is the effect on the fund investors are leaving. Where a transaction affects the existing fund's key person provisions, ILPA says the general partner should disclose "an agreed retention and incentive plan" for the professionals managing the transferred assets. Where it touches "the time and attention of the deal team of the existing fund," the disclosure is how those individuals will split their time between the two vehicles — which investors who sold, and stayed in the old fund for its other holdings, need as much as those who rolled. Both recommendations are conditional, and both are accounts of what changed rather than instruments that carry anything across.

The agreement can set the process without clearing the conflict

Settling some of this in the original partnership agreement, years ahead and with nobody under a clock, is the obvious fix, and ILPA does not recommend against it. The guidance contemplates "high-level anticipatory language around the process, such as notice periods, disclosures, conflict approval protocols, voting processes and expense allocations," asking that such provisions "provide sufficient clarity for all parties without unduly restricting or prescribing" how a transaction is run. What it warns against is narrower: "GPs and LPs should avoid LPA terms that seek to 'pre-clear' conflicts associated with continuation fund transactions at the onset of the fund. All conflicts should be mitigated and cleared when they arise." Conflict approvals "should guide the process but should not include a presumptive waiver of conflicts." The process can be written in advance; the conflict has to be examined when it exists.

The cost of deferring the rest is compression. Every question the original agreement left open comes due at once, in a window counted in business days — what the assets are worth, and which of an investor's negotiated terms still apply. ILPA recommends a competitive process for the price, and LPs may collectively request a fairness opinion. The contractual review has no equivalent independent validation mechanism. Each rolling investor must determine which of its negotiated rights survive by comparing the old and new documents against its own side-letter file before the election window closes.