The New ILPA Model LPA: What GPs Need to Know

An interview with Robert Seber of Vinson & Elkins

Privcap: What’s been an important recent development in LP/GP relations?

Robert Seber, Vinson & Elkins: The most important development is probably the announcement by ILPA of a model fund limited partnership agreement – a model LPA – the publication of a whole fund agreement. This is a first-time event, and a fairly important event for the private equity market. ILPA has been moving the baseline, like the line of scrimmage, over years now, step by step. And the model LPA incorporates some of those principles, and also pushes the line of scrimmage in some other areas.

Privcap: What do GPs need to understand about this model LPA?

Seber: The two areas that are probably most relevant are standard of care for general partners, and the tools available to the limited partner advisory committee. The basic principle that the GP has fiduciary duties has never really been questioned. Now ILPA and the taskforce that created this agreement has pushed it a step further, and included what’s called a prudent-person standard. And it says you must act like a prudent person.

The natural reaction is, what’s the big deal? Of course I am prudent. The issue here is, in a private equity fund, the prudent person standard in the context of investment management has a very specific history that really goes back to trust law. If you’re a GP, you’re raising your fund, and you get an LP comment along those lines, be careful. Because prudent person in the investment management world actually has a very specific meaning that may not be consistent with the way a private equity fund is being managed.

I think the more important ramification for GPs is not, hey, be careful, and watch out for a particular language, or there might be a trap. I think the most important ramifications for GPs is to think harder at the fund formation stage about some of the rules surrounding the LPA.

An interview with Robert Seber of Vinson & Elkins

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The New ILPA Model LPA: What GPs Need to Know

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