- Over 100 Endorsements of Non-Binding ILPA Private Equity Principles
- May 12, 2010
- Law Firm: Alston & Bird LLP - Atlanta Office
As of April 15, 2010, over 100 institutional investors had endorsed the Private Equity Principles (the “Principles”) published by the Institutional Limited Partners Association (“ILPA”) in September 2009. ILPA is a non-profit trade association whose members include some of the world’s largest investors in private equity funds. The Principles are a set of best practices developed by ILPA with a focus on “enhancing partnership governance, strengthening alignment of interests and improving investor reporting and transparency for the private equity industry,” according to an ILPA press release. ILPA hopes to “strengthen the long-term viability of private equity as an asset class.”
The Principles focus on three primary areas:
Alignment of interest - Suggestions include that “management fees should cover normal operating costs for the firm and its principals and should not be excessive,” that “all transaction and monitoring fees charged by the general partner should accrue to the benefit of the fund,” and the general partner should have a substantial equity interest in the fund with a percentage of that amount in cash.
Governance - Suggestions include that a supermajority in interest of investors should be able to dissolve the fund or remove the general partner without cause, and a simple majority in interest should be able to terminate the investment period without cause.
Transparency - Suggestions include that private equity funds should provide detailed information to investors regarding fee and carried interest calculations, as well as relevant information about the general partner.
ILPA members who have endorsed the Principles include such influential investors as CalPERS, CalSTERS, MetLife, the New York City Employees’ Retirement System and the Teacher Retirement System of Texas. The publication of the Principles coincided with the depressed M&A environment resulting from the financial crisis, a time when private equity fund sponsors found themselves in reduced bargaining positions. Regardless of whether the Principles have a significant impact on financial negotiations between funds and investors, the detailed best practices set forth in the Principles’ appendices can be instructive to both sides.