Chasing Waterfalls: Analysis and Market Response to ILPA’s Deal‑by‑Deal Waterfall Model LPA (Part One of Two)

With a tighter fundraising environment giving investors more leverage in negotiations, LPs and GPs may find the terms of the model limited partnership agreement (Model LPA) released by the Institutional Limited Partners Association (ILPA) helpful for understanding ideal LP positions. ILPA issued a deal-by-deal waterfall version of its Model LPA in July, as well as an update to the whole-of-fund waterfall version it originally issued in 2019. A task force of attorneys from law firms, investors and asset managers drafted the two documents, which are identical except for the distribution provisions. GP‑side counsel acknowledged that the individual terms of the Model LPA did not stray far from market terms but that both versions are too far tilted toward LPs in their totality for GPs to consider wholesale adoption. This first article in a two-part series analyzes ILPA’s reasons for releasing a deal-by-deal waterfall, specifics of the waterfall economics and GP counsel reactions. The second article will discuss changes to noneconomic provisions of the Model LPA reflected in both versions and ways the Model LPA has affected the PE market so far. See our three-part series on ILPA’s 2019 Model LPA: “Seeks to Empower LPACs and Increase GP Accountability for Fiduciary Duties” (Dec. 10, 2019); “Attempts to Redistribute Economic Risk From LPs to GPs” (Dec. 17, 2019); and “Faces Sizable GP Skepticism En Route to Becoming a Fixture in PE Fund LPA Negotiations” (Jan. 7, 2020).

To read the full article

Continue reading your article with a PELR subscription.