Resources to assist fund managers with fund set-up, initial documentation and getting started.
Model Fund Documents
Annually, the funds industry raises several funds across markets and geographies, each fund taking time and effort from LPs, GPs and lawyers. This translates to millions in fees to lawyers and consultants. Most service providers work from existing drafts from prior funds, iterating back and forth to get the documents to incorporate all parties views. This includes many revisions as they progress to their final form. We hope these links below from various industry organizations will reduce the iterations and costs for fund managers.
ILPA released a Model Subscription Agreement for private equity funds in December 2017. Developed by legal counsels representing the private equity industry, the modular, multi-jurisdictional document provides a balanced, off-the-shelf solution which can be easily customized to meet the needs of fund managers and their investors, saving significant time and cost.
A side letter supplements and, where the fund takes contractual form (such as a partnership), can override the terms of the fund’s constitutional documents and is typically required where an investor has specific commercial, legal, regulatory, taxation or operational concerns with respect to its investment in the fund. Here is side letter guidance from Dechert LLP
Capital Calls & Distributions
After extensive consultation with GPs, LPs and third-parties, the ILPA developed guidelines for the expected level of content in capital call & distribution notices
The terms that govern the relationship between the partners are set out in the Limited Partnership agreement of the fund. Here are two resources - a template LPA from the Swiss Private Equity and Corporate Finance Association (SECA) and explanatory notes published by the British Venture Capital Association (BVCA)
The Management Agreement sets out the terms on which the private equity fund appoints the manager of the fund and provides management services and investment advice to the fund and/or its general partner. Here is an example of a Management Agreement filed with the SEC by Blackstone.
This financial model developed by LAVCA illustrates the basic economics of a traditional venture capital or private equity fund as practiced in most parts of the world today. The model provides a set of key variables that may be changed to test the sensitivity of results under different assumptions.
In an effort to support emerging fund managers, increase clarity, and improve the efficiency of fund formation, IFC SME Ventures has put together a collection of resources to guide fund managers as they setup their first fund. Most of the resources listed here are developed by industry associations and legal counsels representing the private equity industry. These various resources aim to answer questions of emerging fund managers, saving significant time and cost.
Primer: Fund Formation
Chadbourne & Parke
This note provides an overview of private equity fund formation. It covers general fund structure, fund economics, fundraising, fund closings, managing conflicts, and certain US regulatory matters. It also examines the principal documents involved in forming a private equity fund.
Primer: Fund Setup Process
Latham & Watkins
A soup-to-nuts overview of the steps to establish a private equity fund, covering the initial planning phase; development of fund infrastructure; and offering and closing process.