Risk Partners Life Sciences Roundtable 2025, thank you very much!
Risk Partners Life Sciences Roundtable 2025, thank you very much!
Secondaries and continuation funds raise a different insurance issue than a traditional company sale. As the market leader in AIFM insurance, we therefore address this issue on a regular basis. In addition to the risk associated with the assets, the question is who is liable for historical risks after closing when old LPs exit, others reinvest, and new investors join. A W&I policy can remove this recourse from the relationship between vintage funds, the GP, and the continuation fund: For insured warranties and indemnities, the claim is directed against the insurer. This simplifies negotiations regarding seller liability, the warranty schedule, and potential excluded obligations.
In a GP-led secondary, the sponsor plays a dual role. It manages the sale of the maturing fund and continues to hold a stake in the asset on a regular basis through the continuation fund. The parties involved have differing interests: exiting LPs want liquidity, rolling LPs want to continue their investment, new lead investors want protection against historical risks, and the GP wants a workable structure without ongoing seller liability.
LPAC involvement, a fairness opinion, independent advisors, and a transparent disclosure process therefore remain indispensable. The W&I policy does not replace this governance framework. Its value lies elsewhere: it shifts the right of recourse from the purchase agreement to the insurer. To the extent that warranties or indemnities are insured, the Continuation Fund does not have to primarily pursue a claim against the selling fund or a counterparty affiliated with the sponsor. This can significantly ease negotiations regarding warranties, liability limitations, and clean-break structures.
The private equity secondaries market reached a new record high in 2025. Evercore reports a global transaction volume of USD 226 billion, of which USD 120 billion was LP-led and USD 106 billion was GP-led. In its own estimate, Houlihan Lokey confirms a similar figure for 2025 (approximately USD 225 billion) and reports in its accompanying survey of market participants that 86% of respondents expect another record volume in 2026. For insurance solutions, it is particularly relevant that GP-led transactions and continuation funds are no longer a niche phenomenon but have become a market segment of nearly equal size with its own risk and governance logic.
In GP-led continuation fund transactions, W&I is now routinely reviewed and, in many cases, incorporated early on in the term sheet and documentation discussions. In LP-led secondaries, its use is still more selective and depends more heavily on transaction size, the scope of warranties, the availability of data, and the economic significance of the risks.
The contractual and recourse logic (transfer of the warranty risk from the seller to the insurer in exchange for a premium) is identical to that of any other W&I insurance policy. However, three structural features clearly distinguish the secondaries policy from the standard product:
Multiple knowledge holders, multiple no-claims declarations: Unlike in a traditional two-party transaction, a continuation fund typically involves at least two—and often three—levels of knowledge operating in parallel: the lead investor’s investment team (divided into two separate deal teams if there are multiple lead investors structuring the deal jointly) and the GP’s deal team. Standard market policies require separate no-claims declarations for each knowledge-holder group, with the explicit consequence that actual knowledge possessed by one group is not automatically attributed to another. In practice, this means that the disclosure and Q&A processes must be clearly documented separately for each team; otherwise, in the event of a claim, disputes may arise over whose level of knowledge was decisive.
Excluded Obligations as a Separate Coverage Component: In addition to traditional guarantees and any tax exemption, secondary policies often allow for obligations that remain with the seller (“Excluded Obligations”) to be included as a separate coverage component: Obligations that are explicitly intended to remain with the seller (the vintage fund) under the purchase agreement, such as tax liabilities from the period prior to the transaction, damages resulting from the seller’s acts or omissions, or LP clawback risks. This provision is structured in the policy as a separate insurance clause alongside warranty and tax coverage, rather than as an annex. If no Excluded Obligations have been negotiated in the purchase agreement, insurers may also offer synthetic coverage for this provision in appropriate cases; this is a distinct structuring approach that should be clarified with the broker at an early stage.
The policyholder and claims control are deliberately structured as separate entities: The policyholder is typically the Continuation Fund itself and/or the acquiring company, not each individual investor. To limit conflicts of interest on the claims side, lead investors are often granted their own enforcement, approval, or control rights under the policy. This prevents a situation where, in the event of a claim, the GP alone—as the policyholder’s representative—decides whether and how claims against the insurer are pursued.
A W&I policy does not replace a valuation, a fairness opinion, or a proper LPAC process. It does not guarantee a valuation, expected returns, or the economic benefits of the rollover decision. From an insurance perspective, the second limitation is more significant: known risks, disclosed findings, intentionally accepted structural issues, and risks that were not reviewed during underwriting or that lack an insurable structure are generally excluded from coverage. For known tax, legal, litigation, environmental, or regulatory risks, a tax liability, specific indemnity, contingent risk, or litigation risk structure may be required.
The extent of coverage that can be achieved depends largely on how many assets are being transferred and the realistic scope of due diligence available for that purpose, not on the size of the transaction itself.
In a single-asset transaction, the warranty package can typically be structured much like that of a traditional M&A transaction: broad warranties regarding title, taxes, and operations are insurable, provided that the buyer conducts a comprehensive due diligence process commensurate with the scope of the warranties provided and that management is actively involved in the disclosure process. If only sell-side due diligence is available (a common scenario in secondary transactions, since the original investment process often took place years ago), coverage remains attainable, but typically only with significantly more knowledge-based exclusions in favor of the sponsor’s transaction team. Anyone who fails to actively address the scope of knowledge in this context risks ending up with a policy that looks comprehensive on paper but fails precisely because of this clause when a claim is made.
In a multi-asset portfolio transaction, the logic shifts fundamentally. Guarantees then typically focus on the transferred equity interests or rights—their ownership, transferability, and freedom from encumbrances—as well as on individual, narrowly defined statements regarding the underlying assets, rather than on a comprehensive list of guarantees for each portfolio company. Since, in most cases, only sell-side due diligence is available here as well, the coverage of the underlying asset warranties is correspondingly limited. For investors in multi-asset closed-end funds, this means that the insurance primarily protects the transaction structure and the transfer of ownership itself, rather than fully covering the operational quality of each individual portfolio company.
LP-led secondary transactions typically do not involve the sale of a portfolio company, but rather fund interests, fund portfolios, or economic interests therein. The scope of warranties is therefore narrower. The focus is on ownership and authority to dispose of assets, transferability, required consents, outstanding capital commitments, unfulfilled obligations, distributions, clawback or giveback risks, side letter/LPA issues, tax representations, and limited information regarding the status of the fund interest. A W&I solution makes sense here only in select cases: when the transaction size is sufficient, the data room is in order, there is relevant seller recourse, and the risk cannot be addressed more economically through a purchase price adjustment, deferred payment, holdback, or specific indemnification.
There are two common structural variants on the market, and the choice has direct economic consequences:
If the new investor is the sole insured party, the indemnity payment, premium, and deductible are calculated on a pro rata basis according to the investor’s share of the fund’s net asset value; an investor with a 50% share of the net asset value is, in economic terms, entitled to only 50% of the calculated coverage, not the full policy value.
If, on the other hand, the continuation fund as a whole is the insured party, the indemnity payment, premium, and deductible are calculated based on the fund’s full net asset value, regardless of the individual investors’ ownership percentages. This option is relevant when existing LPs who are reinvesting and the GP itself are to be covered by the insurance, which is the more practical approach in many continuation fund structures because, in any case, multiple parties retain an economic interest in the fund’s assets.
Which option makes more financial sense depends on the specific ownership structure and should be clarified before the application is submitted. A subsequent change in the insured party generally also affects the premium calculation and delays the process.
Unlike many LP-led structures, where the use of insurance is still less common, the structuring parameters for GP-led transactions have now become so well established that they can serve as a basis for negotiation.
In standard GP-led processes, the primary limit is often 10% of the net asset value, although higher limits or excess layers are possible for larger or more complex transactions. The term often follows the familiar W&I pattern: approximately three years for general operating warranties and, depending on the wording, jurisdiction, and risk bearer, up to six or seven years for fundamental warranties, tax warranties, tax indemnities, and excluded obligations. Regarding the allocation of costs between the selling vintage fund and the continuation fund, a 50-50 split has become a common—though negotiable—practice. Deductibles are regularly structured to be significantly lower than in traditional corporate M&A transactions; for fundamental warranties and excluded obligations, a complete waiver of the deductible is often negotiable.
For tax liabilities of the portfolio company that arose prior to closing, supplementary tax W&I coverage can be structured, typically based on a separate tax due diligence review. This coverage must be distinguished from tax liability insurance: If the issue involves a tax position that has already been identified, specifically valued, or is in dispute, general tax W&I coverage is generally insufficient. In such cases, it must be separately assessed whether a tax liability or specific indemnity structure is appropriate.
A realistic placement process for a secondaries W&I policy takes at least two to three weeks, provided the documentation is prepared and the mandate is clear. It typically involves preparing the risk profile, approaching the market, selecting the insurer, and the underwriting process—including Q&A, an underwriting call, and policy negotiations. If the insurance issue is raised late in the transaction process, the very phase during which the scope of coverage and exclusions can still be negotiated is shortened, with the result that, in the end, a narrowing time window determines the depth of coverage rather than the actual risk situation. Furthermore, since the insurance structure directly impacts the term sheet negotiations for the continuation fund transaction, it conceptually belongs at the level of the term sheet itself, not in a subsequent documentation phase. This aligns with the timeline dictated by the LPAC review anyway: standard LPAC processes provide for review periods lasting several weeks before any decisions are made—a time window that can be utilized for parallel insurance placement if the broker is involved from the outset.
For an initial market assessment, the draft purchase or transfer agreement—including the list of warranties and indemnities—an overview of the transaction structure, details on the due diligence already conducted, and information on known risks are usually sufficient. For the subsequent market submission and underwriting, additional documents are required depending on the structure, such as a data room index, fund agreements, side letters, LPAC documents, valuation or fairness opinion documents, and Q&A documentation.
GPs structuring a continuation fund benefit from an early assessment of whether—and to what extent—the structural conflict of interest with existing LPs can be mitigated through insurance; this is an issue that regularly comes up during the required consultation with the LP Advisory Committee. In practice, the insurance structure can be part of the disclosure package submitted to the LPAC for approval. A market-tested or already negotiated policy demonstrates that the liability and recourse conflict is not addressed only after signing. However, it does not replace price review, a fairness opinion, or the actual LPAC governance. Lead investors and their legal counsel must know, prior to finalizing the warranty and indemnity schedule, which parties are authorized to issue separate no-claims declarations and who is authorized to file, pursue, or release claims under the policy. Fund counsel and corporate finance advisors who support secondary transactions benefit from an assessment of what scope of coverage is realistically achievable given the respective depth of due diligence; as shown, single-asset and multi-asset structures follow different logics in this regard. Sellers and exiting LPs benefit from the insurance solution in a different way: A W&I policy can enable the vintage fund to achieve a largely clean break with nominally limited liability under the purchase agreement, thereby reducing or eliminating the need for escrow or holdback structures. Whether this is fully successful depends on the scope of coverage, the excluded obligations, known risks, and the negotiated seller liability.
Anyone structuring a secondary transaction should not leave the insurance issue until the point at which the list of guarantees has already been finalized. The structure of the policy—who the policyholder is, how claim and control rights are allocated, and which groups of key personnel must provide separate representations—influences the negotiation of the purchase agreement itself, not just the subsequent insurance coverage.
This article is intended for general informational purposes only and does not constitute specific legal, tax, or insurance advice. Whether and to what extent insurance coverage is available depends on the specific facts of the case, a legal review, the insurers’ underwriting requirements, and the final terms of the policy.
How does Risk Partners provide support?
We are available on short notice to provide an initial assessment of the insurability, marketability, or structuring of a secondaries W&I solution.
Call us at +49 89 6223383-0 or email us at dealinsurance@riskpartners.de.
