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.

An investor who lets the window close is treated as having sold. The guidance chooses that default deliberately — "LPs should never be forced to roll their interests into a new vehicle" — and it is the right default. It also means the decision to stay carries the burden of proof, inside a month, about a partnership nobody has read against their own file yet.

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 meets this squarely, and with a definition. Rolling investors must be offered participation "with no change in economic terms i.e., a 'status quo' option," and the guidance says what that covers: 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. Four items, all economic, each stated as a thing that must not get worse.

Beside them sits a wider sentence: 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 is written against one agreement

Everything outside those four items has to cross on its own. 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. A continuation vehicle is a separate partnership with its own agreement, and the model's clause does not reach it.

The guidance closes that distance by asking for the terms to be written down again. 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. Selling selected assets into a new vehicle while each investor elects cash or a position in it never touches Article 17, and takes none of its succession along.

The rest is handled by disclosure

Follow the non-economic terms through the guidance and they surface under a different heading. Where a transaction affects the existing fund's key person provisions, what the general partner owes is disclosure of "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 obligations are conditional, and both are notices: an account of what changed rather than an instrument that keeps it from changing.

The silence in the agreement is deliberate

Settling all of this in the original partnership agreement, years ahead and with nobody under a clock, is the obvious fix. ILPA recommends against it, to both sides: "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." A conflict waived in advance is waived before anyone knows what is being waived. The guidance contemplates agreements that say nothing about continuation funds at all, and offers its own principles as the roadmap when they don't.

What that choice costs is concentration. Every question the original agreement declined to answer early 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. The price has a competitive process behind it and a fairness opinion investors can collectively ask for. The contractual position runs on the same clock with none of that apparatus, and an investor working out which of its own terms survive is reading two agreements against a file it assembled years ago.