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Private Equity Fund Practice: ILPA Principles 3.0 – Evolution or Revolution?

  • United Kingdom
  • Financial services and markets regulation
  • Private equity
  • Financial services



The Institutional Limited Partners Association (“ILPA”) has released Version 3.0 of its Principles aimed at fostering transparency, governance and alignment of interests for general partners (“GPs”) and limited partners (“LPs”).

ILPA undertook extensive dialogue with a range of constituencies across the private equity industry and the result is a complete rewrite of ILPA Principles 2.0, more than doubling in size from 20 to 43 pages. ILPA Principles 3.0 expands on and clarifies guidance in version 2.0 on fund economics, key person provisions, Limited Partnership Advisory Committee (“LPAC”) responsibilities, fiduciary duty.

ILPA Principles 3.0 also tackles a range of new and emerging issues including co-investment, cross fund investments, fee and expense reporting, LPA compliance and assurance, subscription lines of credit, non-financial disclosures (incident reporting and regulatory compliance), ESG integration, GP ownership and succession issues and GP-led secondaries transactions (following up on ILPA’s recently published GP-led Secondary Fund Restructurings: Consideration for General and Limited Partners).

To read ILPA Principles 3.0, click here.

To read GP-led Secondary Fund Restructurings, click here.


Changes in ILPA Principles 3.0 to previous guidance on Limited Partnership Advisory Committees include:

• The LPAC mandate should be clearly disclosed and should generally include matters specific to evaluating conflicts of interest and other matters requiring a change to or interpretation of the LPA

• The GP should not be an actual or perceived member of the LPAC and the GP should disclose where any voting member has an interest in the GP. All LPAC members should be expected to participate and vote. The only abstentions should be for those members who may be conflicted on the issue under consideration

• GPs should be able to articulate the basis on which LPAC members are selected

• Voting arrangement should be structured such as to prevent any single organisation from having a de facto or de jure veto power. LPAC members should have one vote per institution (ie no super vote)

• Each meeting should include a private session without the GP present (ie LPs only) and LPAC members should have private access to the auditor

• The cost of LPAC participation should be met by the fund

• The GP or the LPAC member should disclose when an LPAC member has a conflict of interest in relation to the matter under consideration

• GPs should provide notice to the full partnership when the LPAC engages counsel or third parties and when certain decisions are taken by the LPAC such as changing the fund auditor or indemnification payments in excess of prescribed limits

• The GP should disclose to the LPAC all fees and expenses which are paid or payable, on an annual basis

• The GP or LPAC should appoint a rotating chair with one to two year terms

• LPAC members should be generally understood to have a fiduciary duty to the fund beyond the duty to act in good faith

• Participating individuals should have delegated authority to act on behalf of their organisations

• The partnership agreement should clearly state the expectations for LPAC participation including any penalties for failing to uphold such expectations


The new guidance on co-investment includes the following:

• GPs should disclose to all limited partners LPs in advance, through both the PPM and LPA how co-investment opportunities, interests and expenses will be allocated among the fund and any participating co-investors

• Policies should describe how GPs will disclose and/or mitigate potential conflict of interest issues as well as any risks tied to a specific transaction due to the co-investment tranche, eg, concentration limits

• Where rights to evaluate or participate pro-rata in co-investment opportunities have been granted via side letters, GPs should disclose the existence of such arrangements to all LPs

• GPs should also disclose whether differentiated economics have been offered to LPs participating in co-investments, as well as the allocation of any follow-on investments related to co-investments

• Any fees payable to the co-investment vehicle should accrue to the underwriting fund to be offset against management fees

• Where GPs have granted preferential access to co-investment opportunities to LPs participating in subsequent closes, GPs should carefully consider how to balance interests across different investors and classes of LPs

• GPs should have the option but not the obligation to provide co-investment opportunities to any electing LPs or third parties

• GPs should ensure that all suitable investment opportunities received by the GP, fund manager, key persons, or affiliates will first be allocated to the fund, if the opportunity fits the fund’s investment strategy and the fund has available remaining commitments

• In presenting a co-investment opportunity to LPs, GPs should provide prospective co-investors with the strategic reasoning for including the co-investment tranche rather than allocating the entire amount to the fund

• Any parallel vehicles or any affiliates of the GP should be permitted to participate in co-investment opportunities, but only in the same securities and on the same terms as the LPs in the fund

• Any related fees or expenses should be allocated on a pro rata basis across all classes of investor

• Where co-investments have been offered to any other vehicle managed by the GP or an entity beyond the commingled fund, GPs should disclose to the LPAC, particularly where there may be a conflict of interest, including an explanation as to why it has been offered to more than one vehicle or an entity beyond the fund, especially if the deal does not broach a fund’s agreed concentration limits

• GPs should disclose any and all syndication fees and who benefits from them

Cross-Fund Investments

Under the new provisions of ILPA 3. on cross fund investments:

• GPs should seek to limit the number of overlapping investments between funds and the limited partnership agreement (“LPA”) should stipulate a maximum threshold, either by number of deals or by investment size

• The treatment of carried interest and application of any relevant fee offsets should be consistent to both fund’s investments, even where the funds have different terms

• The annual notes to the financials should disclose information about all overlapping investments, such as name of investment, investment size by each fund, expected termination date/number of extensions/remaining dry powder of each fund

• The fees received by the GP from any overlapping positions should be disclosed to LPs, eg, in the “Affiliated Positions” section of the ILPA Reporting Template

• As a general principle, GPs should seek to avoid transfers of assets between funds. In cases where the GP seeks to transfer assets from one fund to a successor fund, the GP should provide to LPs evidence of a competitive and transparent process for the valuation of such said assets and carried interest should be rolled in kind. LPAC approval should be requested for any such transfer.


ILPA does not seek the commitment of any LP or GP to any specific terms. The Principles are not to be applied as a checklist, as each partnership should be considered separately and holistically. A single set of preferred terms and practices cannot provide for the broad variability of products, strategies and investor preferences across the market at any given time, nor account for every individual circumstance.

ILPA Principles 3.0 is put forth as a road map for GPs and LPs to develop the same set of expectations when entering into any partnership, and to frame a more precise and specific dialogue between the GP and the partnership’s existing and prospective investors during the fundraising process and over the life of the partnership. The issues tackled by ILPA Principles 3.0 come up on a day-to-day basis in negotiations between GPs and LPs and nothing in it is revolutionary but both sides will find it helpful to have ILPA’s Principles in mind when seeking to resolve knotty issues in LPA negotiations.

How Eversheds Sutherland can help

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