Last month the Institutional Limited Partners Association (ILPA) published their updated private equity principles.
ILPA’s Private Equity Principles were developed to encourage discussions between Limited Partners and General Partners regarding fund partnerships in Private Equity. ILPA produces best practices aimed at improving the private equity industry for the long-term benefit of all industry participants and beneficiaries.
ILPA continues to assert that three guiding principles form the essence of an effective private equity partnership: alignment of interest, governance, and transparency. With these guiding principles in mind, this third edition of the ILPA Principles includes guidance on:
- GP and Fund Economics
- Fund Term and Structure
- Key Person
- Fund Governance
- Financial Disclosures
- Notification and Policy Disclosures
- LP Disclosures
The private equity industry is becoming more transparent.
While the association has seen private equity firms begin to disclose more of what their management fees cover, limited partners want more transparency, according to Jennifer Choi, managing director of industry affairs at ILPA. They’re concerned that the management fees they’re paying may exceed the cost of running a private equity fund.
But fees will always be a point of contention.
For example, the principles state that fees and expenses charged to individual limited partners and the partnership as a whole and carried interest calculations should be regularly disclosed and subject to periodic review by the limited partner advisory committee and certification by an independent auditor. What’s more, fees should be reasonable and based on the normal operating costs of the fund and the fund partnership should not be charged for expenses that could be expected to be covered by management fees as a cost of operating the fund.
Post by Marcelino Pantoja