PE investing is fundamentally meant to be a mutually beneficial arrangement in which general partners (GPs) become wealthy by generating outsized returns for their limited partners (LPs). The Institutional Limited Partners Association (ILPA) and other LPs in the industry, however, perceive the actual dynamic to be imbalanced, with LPs shouldering most of the risks associated with this model. In an attempt to rebalance the economic risk exposure of the parties, ILPA created a task force of more than 20 attorneys from law firms, investors and asset managers (LPA Task Force) to draft a model limited partnership agreement (Model LPA). The document includes several economic provisions intended to ensure LPs receive their fair share of timely distributions, starting with a “whole-of-fund,” European-style waterfall structure. The Private Equity Law Report recently interviewed an ILPA representative, several LPA Task Force members and multiple GP attorneys to parse the provisions of the Model LPA and its potential adoption in the PE industry. This second article in a three-part series explores the pertinent economic terms of the Model LPA. The first article
examined the Model LPA’s approach to fiduciary duties and governance matters. The third article
will weigh the potential effect of the Model LPA on future LPA negotiations relative to that intended by ILPA. For more on ILPA’s impact on fund terms, see “Trends in PE Funds’ Core Economic Terms and Adoption of Recent ILPA Recommendations
” (Sep. 24, 2019).