Key Takeaways
- • The Institutional Limited Partners Association (ILPA) released Principles 3.0 on June 27, 2019, representing a comprehensive rewrite of the 2011 Principles 2.0, expanding from 20 to 43 pages with enhanced guidance on private equity fund terms and limited partnership agreements.
- • ILPA membership represents 500 limited partners managing $2 trillion in assets under management, positioning the principles as a balanced negotiation framework between LPs and GPs rather than a unilateral LP agenda.
- • Principles 3.0 introduces comprehensive coverage of previously unaddressed areas including co-investments, subscription lines of credit, and GP-led secondaries—marking an evolution in private equity partnership best practices.
- • The updated guidance is built on three core pillars—alignment of interest, governance, and transparency—designed to facilitate constructive discussions between fund initiators and investors while reflecting input from general partners.
- • Several provisions in Principles 3.0 represent potential shifts toward LP-friendly terms that may diverge from current market standards, particularly around subscription lines of credit and preferred return structures.
Summary
The Institutional Limited Partners Association released version 3.0 of its ILPA Principles on June 27, 2019, establishing updated guidance on private equity fund terms, limited partnership agreements, and the legal and commercial frameworks governing LP investments. The release constitutes a complete rewrite of the 2011 Principles 2.0, doubling the document's scope from 20 to 43 pages while addressing evolving challenges and market practices in the private equity industry.
ILPA, representing 500 limited partners controlling $2 trillion in assets under management, designed the Principles 3.0 as a negotiation tool rather than a pure investors' wish list. The guidance reflects input from both LPs and GPs and centers on three foundational principles: alignment of interest, governance, and transparency. By grounding recommendations in these balanced pillars, the framework aims to facilitate constructive dialogue and identify reasonable solutions on contentious issues rather than impose rigid LP-only positions.
While industry observers characterize Principles 3.0 as an evolution rather than a revolution, the updated guidance comprehensively addresses several areas for the first time. These include co-investments (addressing rising LP requests for discretionary and non-discretionary co-investment opportunities), subscription lines of credit, and GP-led secondaries. The expanded treatment of these mechanisms reflects their growing prevalence and importance in contemporary private equity fundraising and operations.
Certain provisions within Principles 3.0 signal potential departures from established market standards toward a more LP-favorable environment. Notable areas of potential controversy include guidance on subscription lines of credit and preferred return structures, which may influence ongoing negotiations between fund sponsors and institutional investors. These provisions underscore ILPA's intent to address modern complexities in private equity partnerships that were not explicitly covered in prior versions.
The release of Principles 3.0 represents a significant milestone for private equity governance, offering LPs and GPs a comprehensive roadmap for developing aligned expectations in partnership formations and framing discussions around evolving industry practices and cost structures.
ILPA, representing 500 limited partners controlling $2 trillion in assets under management, designed the Principles 3.0 as a negotiation tool rather than a pure investors' wish list. The guidance reflects input from both LPs and GPs and centers on three foundational principles: alignment of interest, governance, and transparency. By grounding recommendations in these balanced pillars, the framework aims to facilitate constructive dialogue and identify reasonable solutions on contentious issues rather than impose rigid LP-only positions.
While industry observers characterize Principles 3.0 as an evolution rather than a revolution, the updated guidance comprehensively addresses several areas for the first time. These include co-investments (addressing rising LP requests for discretionary and non-discretionary co-investment opportunities), subscription lines of credit, and GP-led secondaries. The expanded treatment of these mechanisms reflects their growing prevalence and importance in contemporary private equity fundraising and operations.
Certain provisions within Principles 3.0 signal potential departures from established market standards toward a more LP-favorable environment. Notable areas of potential controversy include guidance on subscription lines of credit and preferred return structures, which may influence ongoing negotiations between fund sponsors and institutional investors. These provisions underscore ILPA's intent to address modern complexities in private equity partnerships that were not explicitly covered in prior versions.
The release of Principles 3.0 represents a significant milestone for private equity governance, offering LPs and GPs a comprehensive roadmap for developing aligned expectations in partnership formations and framing discussions around evolving industry practices and cost structures.
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