Private equity limited partners and general partners now have a model agreement, with the introduction Wednesday of the Institutional Limited Partners Association's Model Limited Partnership Agreement.
Washington-based ILPA represents 525 institutions with $2 trillion of private equity assets under management. Having a model agreement to help both LPs and GPs get started or to compare to others has been longtime goal of the association. The legal template is freely available to any industry participant.
The model agreement, based on ILPA Principles 3.0 that were released in June, is aimed at reducing the cost, complexity and resources needed to negotiate agreements, and can be a template for customized agreements. "It's a practical expression of what we've said in 3.0. For those who want to use this language, it's a resource for them. We see it as a starting point," Senior Policy Counsel Chris Hayes said in an interview.
It was a nearly two-year process. With few existing agreements available to review, ILPA drafted 20 lawyers representing LPs and GPs and different kinds of private equity arrangements to create the template, and then sought additional input from trade associations and other groups. "I think we had a significant, healthy debate," Mr. Hayes said.
The agreement applies to Delaware law-based "whole of fund" waterfall arrangements and can be used for traditional private equity buyout funds. ILPA also plans to develop other versions.
For LPs, It can be useful as a starting point in negotiations with established managers, and it can help simplify issues like fiduciary duty, which can become contentious if negotiations are handled by outside law firms, Mr. Hayes said.
GPs were also a consideration, especially new ones who want to raise money quickly, or those frustrated by the growth of side letters and other complexities. "We want to put out a document that's fair to managers because we do want to encourage adoption," he said.
ILPA officials also plan to use the model agreement in ILPA Institute courses.
