To assist limited partners (“LPs”) and general partners (“GPs”) establishing limited partnership agreements (“LPAs”) for private equity funds (“Funds”), the Institutional Limited Partners Association (“ILPA”) recently published a Model Limited Partnership Agreement (the “MLPA”). Certain provisions currently included in the MLPA, however, could pose challenges for GPs seeking to obtain Fund-level leverage or to include LPs in the borrowing base for a subscription-backed credit facility. This Fund Finance Market Update discusses how strict adherence to certain MLPA provisions may conflict with lender expectations in such Fund-level financing arrangements.

January 28, 2020

ILPA Model Limited Partnership Agreement: Fund Finance Considerations

By Ann Richardson Knox, Todd N. Bundrant & Mark C. Dempsey

The Institutional Limited Partners Association (“ILPA”) recently published a Model Limited Partnership Agreement for private equity buyout funds (the “MLPA”). The MLPA followed ILPA’s publication of “Subscription Lines of Credit and Alignment of Interest: Considerations and Best Practices for Limited and General Partners” (the “ILPA SCF Practices”), which reflected the increased usage of subscription-backed credit facilities (also known as “capital call” or “capital commitment” facilities, and each a “SCF”) and outlined for the limited partner community the advantages of SCFs to investors (“LPs”) in private equity funds (each, a “Fund”) and best practices relating thereto.

While the MLPA contemplates the possibility of Fund-level indebtedness and SCFs by providing a placeholder for provisions relating thereto, it appears that ILPA did not fully address provisions of a Fund limited partnership agreement (“LPA”) that are typically requested by lenders to Funds (each, a “Lender”) and commonly incorporated by Fund general partners (each, a “GP”) in connection with such financing arrangements.

Due to the flexibility afforded to both LPs and the Fund by virtue of SCFs and other Fund-level financing arrangements, specific provisions required by Lenders relating to such indebtedness have become a common...