ILPA mulling Europe-focused legal document Model LPA

Sofia Karadima
01 November 2019

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The Institutional Limited Partners Association (ILPA) is exploring the publication of a legal document that offers benchmark language to simplify fund negotiations in the European private equity industry, following the recent launch of its first Model Limited Partnership Agreement (LPA).

The Model LPA was released this week and aims to address the need of GPs and LPs to reduce the complexity, cost and resources required to negotiate the terms of investment in private equity funds. It is a legal template laying out new standards for alignment of interests between LPs and GPs for the private equity industry, ILPA claims, and mostly applies to Delaware-style LPAs.

The Model LPA is designed to be used as a foundational component of an LP-friendly fundraise for GPs, which recommends legal language deemed as "fair and reasonable" by the LP community. It can also be used by new managers that wish to follow best practices and attract LP capital, while minimising associated legal costs. GPs can also use the Model LPA to minimise the number and scope of side letter agreements with their LPs, ILPA said.

The document also specifies that a co-investor should bear its pro rata share of fees, expenses and liabilities of a portfolio.

The Model LPA is a Delaware-law-based "whole-of-fund" waterfall LPA. "In our drafting process we originally tried for a jurisdiction-agnostic LPA, but the comments we received from the industry was that our document would not map to certain legal concepts in Delaware and other jurisdictions. As a result, we decided, in the interest of greater adoption, to move forward with a Delaware model as our first release," a source told Unquote.

"We plan to potentially explore other jurisdictions, including Europe, after getting a sense of the response we get from the market on the Model LPA. Once the document has been out for a certain period, we'll review whether it makes sense for us to adapt this agreement to serve other jurisdictions," the source added.

The source said ILPA thinks that elements of the LPA could be used in the European market in the course of negotiation, but that certain concepts may not map to those jurisdictions. "Given the large number of potential domiciles (Cayman Islands, Luxembourg, Channel Islands etc) it would be difficult for us to craft an agreement that could map to the relevant legal concepts in all places," they added.