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A great deal more or a great deal less? ILPA’s new deal-by-deal model LPA

In July 2020, the Institutional Limited Partners Association (ILPA) released its “deal-by-deal” model private equity limited partnership agreement (LPA), which encourages the adoption of a hybrid deal-by-deal waterfall structure pursuant to which sponsors share in any losses incurred by a fund on an ongoing basis and investors recover a larger share of their contributed capital prior to the sponsor participating in carried interest. 

This client update sets out our observations on ILPA's latest model LPA and the key legal issues for managers and institutional investors to consider when reviewing or drafting the terms of funds that incorporate deal-by-deal payment waterfall structures, including: 

  • the changes made by ILPA to the payment waterfall structure in the deal-by-deal model LPA; 
  • the position adopted by ILPA with respect to sponsor clawbacks, including consequential changes to the clawback provision in the deal-by-deal model LPA; and
  • key points to consider with respect to the treatment of fees and expenses as well as sponsor guarantees.

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