The Institutional Limited Partner Association (ILPA) has published recommendations for how “GP-led fund restructurings” should be organised. These transactions occur when a fund sponsor (GP/manager) introduces a secondary purchaser to buy assets out of one of its existing funds, typically into a new fund structure where the same GP is the manager. Such transactions are complex and inevitably throw up conflict issues. Investors regularly complain that GPs are short on transparency and slapdash with timelines when trying to do one of these deals.
The ILPA recommendations focus on responsibility, transparency and process to try and encourage a better result for investors and GPs:
- GPs should use the Limited Partner Advisory Committee (LPAC) as the forum for driving the transaction and clearing issues. For example, ILPA recommends that the LPAC should review and discuss the deal terms at least 10 business days before the deal is finalised. Throughout the process, the LPAC should have access to the GP’s advisors to check in on status and bids. The LPAC should sign off on abort cost arrangements;
- information should be equally available amongst all stakeholders (investors/LPAC members/buyers). This may require meetings between transaction advisors/portfolio management teams and existing investors or the LPAC;
- investors should have at least 30 business days/20 calendar days to review any proposed transaction (and taking into account local bank holidays for international investors); and
- engaging professional advisors: GPs typically do appoint a financial advisor to help on these sorts of transactions, but ILPA makes two interesting suggestions – such advisors should be engaged by the fund, not the GP and thus represent the fund’s interests; and the LPAC may need its own advisors (paid for by the fund) given its role in oversight.
The recommendations envisage an enhanced oversight role for the LPAC both before a GP-led fund restructuring is launched and during its negotiation. Investors will inevitably watch what the LPAC does with interest. Time to re-read those LPA indemnities for LPAC members…
While the stigma associated with [GP-led restructurings] has diminished, their increasing prevalence raises questions for many LPs. Such transactions require the Limited Partner’s full attention, but the timing of the process is often difficult to predict and is therefore potentially disruptive for LPs, particularly when multiple deals overlap.