- LPA provisions can prohibit LPs from communicating
- Part of an LP’s duty is to speak with other LPs
- LPs fight hard for terms that are important when problems arise
A contractual provision GPs are slipping into fund contracts prohibits limited partners from discussing details of the fund with other LPs, according to Svetlana Loshakov, managing director at Moreland Management Co.
Loshakov said she uses her judgment in selecting when to adhere to the provision. “It’s important for us to carry out our duty as LPs to have that right to discuss the limited partnership with other LPs,” Loshakov said at Buyouts Insider’s first annual Family Office Connect event at the Harvard Club in Manhattan on Oct. 23.
Loshakov said she requests a list of other LPs in a fund along with their contact information, a request that is granted more than half the time. “We negotiate it as a side-letter provision,” she said.
LPs have told Buyouts that GPs have been getting aggressive with fund terms in the strong fundraising environment. Many high-performing PE shops have more demand for their funds than they can handle, creating a ultra-creative atmosphere that enables GPs to dictate terms.
One of Loshakov’s pet peeves is GPs’ waiver of fiduciary duty, a provision that occasionally gets buried deep within fund contracts. “When we see that, we strenuously object,” Loshakov said. She said she gets a concession about half the time in the form of a side letter in which the GP acknowledges it still has a fiduciary duty to the fund.
Ultimately, an LP needs a skillful lawyer on hand to negotiate with GPs, who are usually armed with shrewd legal talent. Even after expending time and money on negotiating fund terms, “99 percent” of the time nothing happens.
“The problem is if things don’t work out … even if the partnership agreement explains the mechanics of what happens in those circumstances … you almost always have to go back to negotiations,” she said. “The stronger partnership agreement you have, the more leverage you have at that point.”
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