U.S. paper money and columns of courthouse The portfolio management, liquidity, andvalue-creation benefits provided in mature-fund GP-led deals appealto many LPs. (Photo: Bigstock)

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In response to general partner (GP)-sponsored secondary activitygrowth, in April the Institutional Limited Partners Association(ILPA) released guidance to the industry on these often complex andconflict-prone transactions.   Entitled “GP-ledFund Restructurings: Considerations for Limited and GeneralPartners”, ILPA's guidance lays out a framework for GPs and limitedpartners (LPs) to work towards making the process for thesetransactions more efficient and transparent.

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The portfolio management, liquidity, and value-creation benefitsprovided in mature-fund GP-led deals appeal to many LPs. Investors want the options—a choice among cash-out,status quo, or a roll and invest alongside the new moneyalternatives—presented to them to be individually fair and derivedfrom a transparent process.  Indeed, ILPA's guidance islargely about process and LP expectations for oversight in GP-leddeals. LPs believe that if there is a good process and oversight,they will get transparency and fairness.

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ILPA recommends the Limited Partner Advisory Committee (LPAC),and, where relevant, all LPs, (1) gets engaged earlier and has anenhanced oversight role throughout the transaction process; and (2)enlists the help of its own counsel and specialist financialadvisor to assist, particularly in GP-led deals that are complexand prone to conflict.

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In this regard, ILPA's guidelines offer LPs practical help.Having both independent counsel and an advisor review thetransaction, guide the GP, and render to the LPAC advice capable ofbeing provided to all LPs, relieves LPs from the burden ofindividually having to deeply analyze each complex deal. Resource-constrained LPs now can seek this advisor-ledreview process, prompting the LPAC to organize itself around itsadvisors for time-sensitive GP-led processes.

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Indeed, the level of assurance LP and pension fiduciaries willobtain from such an independent counsel and adviser review, whichcan be taken and papered at the investment committee and board oftrustees, is a big side benefit of ILPA's guidance.  GPstoo will undoubtedly recognize the power of harnessing theLP-directed advisor to facilitate the process, coalesce opinion,and demonstrate the equity of the resolution to the sellers.

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Some of the key takeaways from ILPA's guidance include thefollowing:

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Communication: Early transparency ofthe deal, economics, symmetry of information between buyer and fundLPs, and timely disclosure of conflicts are critical. Investorsshould have at least 20 calendar days to review the GPproposal.

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Enhanced oversight role of LPACs: Whileadvocating for all LPs, LPACs should be fully aware of potentialconflicts and consider engaging an independent advisor to act forall LPs, particularly in complex transactions. The LPAC should beprovided with full deal terms at least 10 days before the GPfinalizes the letter of intent.

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Deal structure: LPs should have theoption to maintain status quo. LP consent provided should becontingent on a fairness opinion and upfront disclosure oftransaction cost allocations and changes to fund terms.

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Third-party advisors: Complexity andconflicts of interest may warrant the engagement of LPAC counseland an experienced third-party advisor to act on behalf of LPs.

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You can read the ILPA guidance here.

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Finbarr O'Connor and GavinFarrell of BRG Alternative InvestmentAdvisory are invited contributors to ILPA's guidance.BRG advises managers, investors, and LPACs on fund restructurings,portfolio asset sales, and mature fund situations. The views andopinions expressed in this article are those of the authors and donot necessarily reflect the opinions, position, or policy ofBerkeley Research Group, LLC or its other employees andaffiliates.

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