Which structure involves selling a portion of the fund’s investments to provide liquidity to limited partners?

The correct answer relates to a "strip sale," which is a strategy that allows a private equity fund to sell off part of its investments. This is typically done to generate liquidity for limited partners, enabling them to recoup some of their investments while still allowing the fund to retain a stake in the remaining portfolio. This type of transaction is particularly useful in scenarios where the fund needs to provide distributions to its investors but wants to maintain exposure to its successful investments.

In contrast, while a continuation fund can also be a method for providing liquidity to investors, it typically refers to establishing a new fund where existing investments are placed, rather than selling off portions of investments directly. Preferred equity often involves structuring a type of investment that provides certain asset holders with priority in receiving distributions but does not directly relate to selling portions of investment assets for liquidity. Lastly, a sponsor-to-sponsor sale generally refers to transactions where one private equity sponsor sells a portfolio company to another private equity sponsor, and this does not specifically target the liquidity needs of limited partners like a strip sale does.