Key Topics for LPs to Remain Informed 

Below are some common topics which may raise potential issues for LPs and prompt LP actions. These are not exhaustive by any means, and we’ve included a limited set of example questions LPs and their advisers may consider enhancing their understanding and probe potential issues.

Valuation 

Valuation is critical for LPs and GPs alike because it communicates a discrete, quantifiable monetary value at a point in time, enabling informed consent and decision-making. Valuations must incorporate new information, and investors should understand why valuations change or equally don’t change period on period. Using an independent valuer is helpful but not a panacea; assumptions and information drive outcomes, so “garbage in, garbage out.” Further it is critical that investors understand the manager incentives associated with valuations and where the manager is in a fund-raising cycle. Investors should ensure they understand:

• Unit of account: Commonly the Net Asset Value (NAV) of a fund - i.e., the sum-of-the-parts fair market value of fund investments plus other net assets and liabilities. 
  • Questions: At what level were the fund or investments valued? What components (such as fee liability streams) are excluded from NAV? How might an LP stake be valued differently versus pro rata NAV (side letters, special rights, transfer restrictions)? At what level and distinction were fund investments valued? 
• Methodology: Underlying investments can be valued using a variety of methods, including practical expedients (NAV of other funds for fund-of-funds), observable market prices for the same securities, DCF variants, market approaches (multiples), cost basis, option models, or weighted hybrids. 
  • Questions: What methodology is used? Will it change quarter over quarter—why or why not? What are the key assumptions and how often are they updated/marked to market? Who performs valuations and what input does the deal team have? Why was the chosen methodology used, and would outcomes differ under alternatives? Do prior exits support the valuations? Have forward-looking inputs been realized (e.g., run-rate EBITDA adjustments)? Have sale processes been aborted while marks remained unchanged? 
• Illiquidity: Funds and portfolio investments may appear liquid, but this can be illusory especially in times of stress or uncertainty. Fund-level illiquidity can be bottom-up (portfolio lacks deep/liquid markets) or top-down (more sellers than buyers absent price adjustments). Illiquidity often signals price discovery failure due to incomplete/uncertain information. Prudent managers typically incorporate a degree of illiquidity via conservative valuation approaches. 
  • Questions: How illiquid is the portfolio? What comparable sales have the manager completed recently, and how comparable were the market conditions? How conservative is the approach, and, if forward expectations are not realized, how would methods/buyers change? How deep is the buyer pool? What is the cyclical volatility range for multiples/earnings? How does jurisdiction affect timeline? Is there regulatory uncertainty? What is the financial condition of potential buyers and sellers? 
  • LP stake sale questions: What information can be shared with prospective buyers? Is there active pricing via secondary brokers? Can liquidity be obtained by pledging the LP stake as collateral? How does the fee-stream liability factor into NAV, and what discount will buyers apply relative to the NAV growth outlook? 

LPAC/Manager Communication 

LPs’ ability to evaluate private fund investments depends on adequate disclosure and effective manager communication. Although consistency is key and allows like for like comparisons over time Managers should update, augment, and refine periodic reporting as situations evolve and not feel constrained by templates. Appendices or supplemental materials may be appropriate. An LPAC is a good first step, but engagement must intensify near the end of fund’s life, when conflicts and misalignment increase. 

• Questions: Is sufficient calculation and assumption detail provided to understand valuations? Who are the LPAC members, and are they aligned in engagement and outlook? Is the manager transparent or evasive? Does reporting rely on potentially misleading or irrelevant performance metrics? Do reports acknowledge market conditions and key portfolio changes? 

Continuation Vehicles 

Holding periods have lengthened, and private equity has evolved toward a more permanent asset class with varied growth/return profiles, supporting continuation vehicles (CVs) to hold investments beyond original fund lives. When properly used, CVs can be healthy, but they present inherent conflicts of interest among managers, selling LPs, and rolling LPs. These conflicts must be diligently managed with independent advice. Further, LPs should exercise skepticism and vigilance to make informed decisions and protect their interests. 

• Questions: What are sale prospects/value today versus in the future - what is expected to change, and why is that not priced today? Do the LPAC/LPs have an independent adviser with full access to information and a defined scope? Is the timeline compressed, and why was the CV not flagged earlier? Is there robust price discovery for selling LP stakes? Are management fee and carry terms fair? Are the manager’s narratives and outlook consistent with prior views? For multi-asset CVs, do investments share outlooks/holding periods? Are assets included for specific value-creation plans or due to lack of alternatives? Should LPs roll or sell? 

Wind-Downs and Liquidations 

In absolute numbers, there will be more fund wind-downs and liquidations as the industry matures. Many managers have limited experience executing efficient wind-downs, especially where assets are involved in litigation or insolvency. Managers should consider accelerated divestments and collaboration with restructuring professionals to implement alternative holding structures and strategies before available options are exhausted. 

• Questions: Why have assets not been sold? Are valuations wrong, or are manager/investor expectations misaligned? What are the local jurisdiction requirements for wind-downs? Who will capitalize a wind-down, and how will this affect distributions? Does the manager have the team to manage a wind-down? Has the fee structure been altered for the wind-down? 

Fraud/Negligence and Conflict Scenarios 

Fraud and negligence are realities in investment markets and are prevalent in private funds due to lighter regulation and less disclosure. LPs must remain vigilant to manager conflicts and potential breaches of fiduciary duty. Addressing issues early prevents metastasis into major frauds that are difficult to correct. 

• Questions: Has the manager received complaints/letters from other LPs? Are there active legal cases? Is the LPAC fulfilling its duties? Are there red/yellow flags from valuations, communications, or conduct that warrant investigation? Does the LPAC have advisers prepared for potential fraud/negligence? Do LPs understand their rights regarding GP/manager removal for cause or without cause? 

Advisor Toolkit and Services 

LPs increasingly require multidisciplinary advisers to evaluate issues in private funds. A&M has broad service offerings differentiated versus investment banking advisers to help in situations as noted above. Example support includes:

• Valuation fairness opinions and ongoing portfolio valuation
• Independent reviews and advisory (for GPs or LPACs/LPs)
• Independent and/or CRO/conflict director services
• Fund wind-down managers
• Replacement or transition managers
• Corporate finance for asset sales
• Disputes, investigations, and resolutions
• Restructuring and insolvency advisers/managers
• Secondary LP sales
• Fund finance advisory 

About A&M

Alvarez & Marsal (A&M) is a global professional services firm specializing in performance improvement, turnaround and restructuring, transaction advisory, valuation, disputes and investigations, and operational transformation for investors and companies. Founded in 1983, A&M is privately held and headquartered in New York. A&M employs more than 12,000 professionals. The firm operates from 100+ offices across six continents, with locations spanning the Americas, Europe, the Middle East, Africa, and Asia‑Pacific.

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