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Alternative Market Briefing

Other Voices: Updated ILPA model LPAs continue to miss the mark(et)

Thursday, September 24, 2020

By: Gus Black, Zachary Oswald, Albert Tse, Thiha Tun, Dechert

The Institutional Limited Partners Association has recently released an update to its model limited partnership agreement for private equity funds and other closed-ended funds. One of the stated benefits of the Model LPA and the recent updates is to create a "baseline" to determine which terms are important and reasonable in negotiations between managers and investors. However, instead of reflecting "market" fund terms, ILPA appears to be continuing a campaign to "move" the private equity market by suggesting uncommon terms which it considers to be investor friendly.

Updates to the Model LPA - Highlights

The revised Model LPA contains the following significant changes:

Clawback Guarantees. Under the updated Model LPA, the general partner is now required to procure personal guarantees from the ultimate carried interest recipients in connection with the GP's clawback obligation. In our view, in many situations it will be overkill to have both a carried interest escrow account (which ILPA suggests to be at 30% of carried interest distributions) and personal guarantees from the carried interest recipients, particularly in respect of a fund that adopts a "whole of fund" distribution waterfall where the risk of carried interest overpayment is low. Typically, carried interest escrow accounts and personal guarantees serve as alternative protections and would rarely be implemented together. Pr......................

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