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By: Kate Binedell, Christine Ormond Bryan Cave Leighton Paisner

ILPA has recently published a model limited partnership agreement (LPA) that reflects preferred terms and practices for the LP community investing in private equity funds. The Model LPA conforms to ILPA Principles 3.0 (published earlier this year), and is part of ILPA's Simplification Initiative, designed to streamline the negotiation process and reduce fund formation costs. Time will tell as to whether or not the Model LPA is likely to emerge as the manager roadmap to attract LP capital and establish best practices, or instead becomes a useful benchmarking/reference point of investor representations in private funds. In either case, the industry should carefully consider the pro forma, alongside Principles 3.0, and be prepared for a healthy dialogue between investors and promoters during the fundraise and over the life of the fund.

We have provided a sample of those ILPA Model LPA provisions that we believe will be of interest to fund managers, sponsors and investors, along with our comments.

1. GP and fund economics

The Model LPA features a whole fund carried interest calculation (ie the European standard all-contributions-plus-preferred-return-back-first model) with illustrative typical market terms for a large closed-ended value added or opportunistic fund - being a management fee (unspecified in the Model LPA, but typically 1-2%), 20% carry, 8% hurdle and 80:20 GP catch-up arrangement. ......................

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