Continuation Vehicles

Super Carry Is an Option on the Entry Price

A 25 percent carry above a 3x hurdle is worth about 0.5 to 1.1 percent of entry NAV. The input that moves it most is one the buyer does not control.

On a single-asset continuation vehicle, super carry is a call option. Its strike is a multiple of the entry price, and the entry price is set in a transaction where the GP sits on both sides. At the terms Bloomberg reported this month, 25 percent above a 3x hurdle, the tier is worth roughly 0.5 to 1.1 percent of entry NAV on standard assumptions, and it gains 15 to 20 percent of its value for every 10 points the entry price sits below the asset's fair value.

Bloomberg reported on October 7 that 29 percent of single-asset continuation funds closed in the first half of 2026 carried super carry, almost triple a year earlier, citing PJT Partners (When 20% of Profits Won't Do, Fund Managers Seek 'Super Carry', republished by Advisor Perspectives). Parthenon's $1.7 billion vehicle for Kroll Bond Rating Agency got it after multiple buyers balked. The hurdles vary: a 30 percent IRR, a 3x return on invested capital, or both. One dealmaker told Bloomberg his firm's internal estimate is that only a fraction of these tiers will ever pay.

That estimate is probably right. It is also the wrong number to be looking at.

What the tier is

Standard carry on a continuation vehicle is 20 percent of profit above the buyer's cost. The buyer's cost is the entry price. Super carry adds a second tier: once the vehicle returns 3x cost, the GP's share steps up to 25 percent. In some deals the step-up applies only to profit above the hurdle, a ratchet. In others it applies to all profit once the hurdle is met, a catch-up. Both are options on the vehicle's equity, struck at three times the entry price.

So the entry price is a strike price, twice over. The base tier is struck at the entry price. The super tier is struck at three times it. Lower the entry price by 10 and the first strike drops by 10 and the second by 30.

The entry price on a continuation vehicle is not presumed to be fair value. ASC 820-10-30-3A(a) says a transaction price may not represent fair value when the transaction is between related parties, and that the price can still be used as an input if the reporting entity has evidence the transaction was entered into at market terms. The GP sells from one fund it controls to another fund it controls. Under ASC 820-10-20, market participants are independent of each other, meaning not related parties under Topic 850, so the GP is not one. The presumption is rebuttable. The evidence that rebuts it is a competitive process and a fairness opinion, and super carry gives the party running that process a measurable interest in where the price lands. That is worth stating when the evidence is weighed. The fairness opinion is engaged by the GP, it delivers a range, and the LPs who ask to see it receive it on a non-reliance basis. The SEC's 2023 rule requiring a fairness or valuation opinion on adviser-led secondaries was vacated in June 2024, so there is no regulatory floor beneath that.

The numbers

Take a vehicle whose equity is worth 100 today on an independent valuation. Equity volatility 40 percent, a five-year hold, a 4 percent risk-free rate, 20 percent base carry, 25 percent above a 3x hurdle. I value the tiers the way I value any carry: as calls on the equity, risk-neutral, closed form.

At an entry price of 100, base carry is worth 8.2 per 100 of entry NAV. The super carry tier adds 0.54 as a ratchet and 1.14 as a catch-up. That is 7 to 14 percent more carry value, or $5 million to $11 million on a $1 billion vehicle. The model gives the hurdle a 7 percent chance of clearing on risk-neutral drift and a 20 percent chance at a 15 percent expected equity return. One in five is a fraction. It is not a rounding error. At the four-year horizon Evercore says single-asset buyers underwrite to, the tier is worth 0.36 and 0.85, and a 3x in four years is a 31.6 percent IRR, which is why the deals that pair a 3x with a 30 percent IRR hurdle are asking for roughly the same thing twice.

Now move the entry price to 90, with the asset still worth 100. Base carry rises to 9.0. The super carry tier rises to 0.64 as a ratchet and 1.31 as a catch-up, 15 to 19 percent more than at 100. At 80 the tier is worth 0.77 and 1.52, 33 to 43 percent more. Over four years the sensitivity is steeper: 20 percent more at 90, 44 to 53 percent more at 80. The asset has not changed. The buyer's underwriting case has not changed. The strike moved.

Two things run the other way, and I want them in the file. The GP's crystallised carry from the selling fund rolls into the vehicle, and ILPA expects it to; a lower price shrinks that rolled stake. And a GP's standing with its LPAC is worth more than a tier that pays one time in five. Neither changes the arithmetic. They change how much the GP cares about it. The tier is still worth more at a lower price, and the LPAC should know by how much.

What to ask for

ILPA's draft guidance of June 24, 2026 moves continuation vehicle protection toward process: a targeted sale process across a broad buyer set, a disclosure template delivered before the sell-or-roll decision, LPAC engagement, and a fairness opinion or valuation report as a standard deliverable (ILPA, Draft Continuation Vehicle Guidance). Mercer Capital's summary was that process is the new price protection. Process is necessary. On a super carry deal it is not sufficient, because the thing being protected, the price, is also the strike on an option the GP holds, and the process does not value that option.

Three items belong in the LPAC pack on any single-asset vehicle with super carry:

1. An independent point estimate of fair value for the asset as of the measurement date, not a range. State the entry price against it, in points.
2. The value of the super carry tier at the proposed entry price and at the independent fair value, with the difference. Once the inputs are set, this is two lines. The inputs, volatility, hold, hurdle and form, are the ones the buyer already underwrote.
3. The probability the hurdle clears under the buyer's own base case. Evercore's H1 2026 review puts the average gross target for single-asset continuation vehicles at about 2.3x over roughly four years, against 1.9x for multi-asset vehicles and 1.7x for diversified LP portfolios. If the hurdle is 3x, it sits above the buyer's own target. Say so, and say what the tier is worth anyway.

Valuing the asset once, independently, and running the carry tiers off that value is the fact pattern that shows up in continuation vehicle work. MELD does both halves: the fair value of the rolled asset and the value of the GP's interest in it.

The counterargument

Super carry only pays when everyone has done well. A buyer who earns 3x has no complaint about a GP who takes 25 percent of what comes after. The tier aligns incentives after close, which is when the GP's effort matters.

I accept that for the buyer. The party with the complaint is the selling LP, who was paid the price the hurdle is measured against and is not in the vehicle to collect the 3x. If the asset was worth 100 and sold at 90, the selling LP gave up 10 and the GP's option got 15 to 40 percent more valuable. Alignment after close was bought with a price before close. The LPAC's job is to check that price. A fairness range does not do it.

I am wrong if single-asset vehicle equity runs materially below 25 percent volatility or holds run under three years. At those inputs the tier is worth under 0.2 percent of NAV and its sensitivity to the entry price stops mattering. I am also wrong if super carry hurdles are set against an independent valuation rather than the deal price. I have not seen one.

Super carry is a call option struck off a price the option holder helped set. Value the asset once, independently, and value the option off that.

Sources

• Bloomberg, "When 20% of Profits Won't Do, Fund Managers Seek 'Super Carry'," October 7, 2026, republished by Advisor Perspectives (PJT Partners data on H1 2026 single-asset continuation fund closings); summarised by Private Equity Wire, October 8, 2026
• Evercore, H1 2026 Secondary Market Review (single-asset continuation vehicles $34B, 53% of GP-led volume; super carry in over a third of sponsor-led transactions; average gross target multiples of ~2.3x single-asset, ~1.9x multi-asset, ~1.8x single LP interests, ~1.7x diversified LP portfolios, over a typical four-year horizon)
• ILPA, Proposed Updated Continuation Vehicle Guidance, June 24, 2026; ILPA Continuation Fund Disclosure Template, January 27, 2026
• Mercer Capital, "ILPA's New Continuation Vehicle Guidance: Process Is the New Price Protection," July 2026
• ASC 820-10-30-3A(a) (related-party transaction price may not represent fair value; usable as an input with evidence of market terms); ASC 820-10-20, definition of market participants (independent, not related parties under Topic 850)
• Option values: MELD closed-form model as described in the exhibit; inputs stated in the article