The Drawdown

Investors and funds will both be familiar with the limited partnership agreement (LPA). After all, the LPA is the key legal document governing the relationship between investors and the funds they invest into. Yet, despite its significance for the sector, for years there has been no consistent form of LPA in the market. This has now changed. The Institutional Limited Partners Association (ILPA), the body that represents investors who invest into funds, recently released its Model Limited Partnership Agreement (LPA) for the private equity industry. Thanks to the release of the Model LPA, there is now a template available that can serve as a base document for private equity fund launches.

Authors: Leon Stephenson

However, as the form of the LPA and the provisions within it are so important to any lender who would like to provide a fund level subscription line facility, the content of the ILPA Model LPA as an intended template for the industry must be considered. This article discusses some of the areas where the ILPA Model LPA addresses concerns of lenders, and other areas where it does not.

Power to borrow and give security

Under the Model LPA all borrowings, issuance of guarantees and financial indebtedness of the fund are limited to a duration of 6 months and 15% of total commitments (unless advisory committee consent is obtained). This is restrictive as a number of fund finance facilities have longer maturity periods. It is disappointing that ILPA felt it necessary to build in this restriction, as the market generally accepts that short-term borrowings include facilities that allow for loans outstanding for up to 12 months.

Recallable Capital

As is normal in the industry, the general partner (GP) has the right to issue drawdown notices to each limited partner on 10 business days’ advance notice. In addition, there are provisions that state that undrawn commitments of limited partners are increased by distributions made to them subject to customary caps and restrictions. The provision of this “recallable” capital is becoming more and more frequent in LPAs and lenders are increasingly able to lend against such recallable capital.

First appeared in The Drawdown on 4th December 2019. To read the full article please visit