Continuation Vehicle Governance Under Scrutiny in Abu Dhabi Investment Council Dispute

Most critiques of continuation vehicles focus on their occasional use as a tool to kick the can down the road in a slow market, but a recent dispute is now airing out some of the CV governance considerations that can also turn problematic.

In December, Abu Dhabi Investment Council, an independently managed unit of Mubadala Investment Company, filed suit in Delaware Chancery Court in an attempt to block sponsor Energy & Minerals Group from transferring a stake in Ascent Resources, a natural gas operator in the Utica shale formation, into a continuation fund at a valuation of around $5.5 billion.

The parties have since agreed to pursue arbitration, with the transaction halted until at least late February 2026.

The sovereign wealth fund’s complaint alleges that EMG prioritized its own economics over investor interests: “Defendants are trying to force a conflicted sale of EMG fund assets to a continuation vehicle to reap a massive benefit for themselves at the expense of ADIC and the other investors to whom Defendants owe fiduciary duties.”

“Defendants have made multiple material misstatements and omissions about the proposed transaction and employed a variety of coercive tactics,” lawyers for ADIC wrote in the filing. “In so doing, EMG has placed its own self-interest above the interests of its investors.”

Court filings indicate that the limited partner advisory committees of two EMG-managed funds holding Ascent initially declined to waive the conflict of interest on the proposed transaction—EMG received just 3 of 43 Advisory Board members’ votes—and numerous members asked for additional time and information.

ADIC claims the sponsor then approached LPs individually and eventually claimed it had received LPAC approval without holding a second formal vote or providing documentation of the consent.

The complaint argues that EMG was incentivized to pursue as low a valuation as possible on the CV transaction to maximize its ultimate outcome from Ascent.

The sponsor, says the complaint, intended to roll its existing equity, has the option to contribute new equity at what could be an artificially low price, and will have its carried interest reset.

The move could also salvage the EMG’s economics on an asset that might not have generated meaningful carry through a conventional exit at the current valuation, and the lower the CV valuation, the greater the potential carry at the subsequent exit.

In pursuit of a depressed CV valuation, ADIC believes EMG misrepresented the value of the asset to its LPs and downplayed market appetite for alternative exit options.

EMG did hire an advisor to obtain a fairness opinion on the CV purchase price. But ADIC alleges that the fairness opinion relied on unrealistically negative valuation assumptions provided by EMG, which were meaningfully worse than the assumptions used in the CIM shown to potential CV investors.

According to the complaint, “a key input for analysis of the CV Transaction was Ascent’s ‘inventory life,’ which is a measure of Ascent’s inventory (i.e., for how many years Ascent will be able to sell natural gas until it runs out). As EMG later told ADIC and other Advisory Board members, ‘[i]nventory life is one of the strongest corollaries to valuation.'”

“EMG has stated to the Advisory Boards that Ascent’s valuation is materially depressed compared to peers because Ascent has only an inventory life of [redacted].”

“At the same time, unbeknownst to Advisory Board members, EMG told potential investors in the continuation vehicle the opposite: Ascent has an inventory life of [redacted], which makes it a ‘premier asset with competitive advantages’ compared to peers.”

ADIC says that EMG pitched the CV Transaction as the only feasible way for limited partners to access liquidity at a fair price, claiming there was no viable exit path through an IPO or sale of the company.

“EMG told the Advisory Boards that Ascent has no prospects of an IPO or M&A transaction,” says the filing.

“At the same time, EMG told prospective investors in the continuation vehicle that an IPO is expected and an ‘upside case’ involves a merger. There were even discussions earlier this year among EMG and another significant Ascent shareholder of conducting an IPO. None of this was disclosed to Advisory Board members.”

ADIC’s accusation that EMG was dishonest in its gloomy portrayal of available exit options seems to be supported by competing bids for Ascent that were received from third parties after the governance dispute went public.

Last month, Kimmeridge Energy Management submitted a $6 billion offer, positioning its bid as superior to the CV valuation.

“Our view is that this is a significant premium versus the valuation proposed in the continuation funds,” Kimmeridge managing partner Ben Dell said. “It is a high-quality asset with significant strategic value. When we look at the valuation that is being floated out there, our belief is there are better options for investors.”

Hedge fund Mason Capital Management also expressed interest, publishing a letter to Ascent’s board that corroborated ADIC’s complaints and called EMG’s sale process “fundamentally flawed.” Mason indicated it was prepared to make an all-cash offer superior to EMG’s proposed transaction.

Ultimately, if it’s determined that Kimmeridge’s offer provides real value uplift, EMG could face an uncomfortable choice: accept a higher third-party bid that validates investor complaints, or defend the lower price through arbitration.