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Legal terms scupper LPAC institutionalization

Investors’ caution over their legal status and liability means LPACs are unlikely to take on greater responsibilities

Limited partner advisory committees are unlikely to become more professional bodies, owing to sensitivities around limited partnership status, according to a panel at the Association of Luxembourg Fund Industry’s Operational efficiency and legal engineering conference on Tuesday.

While some LPACs have become more institutionalized, it is unlikely to emerge as a wider trend, the panel said.

“LPACs will remain ad hoc because LPs are sensitive about their liability and LP status,” said Frédérique Lifrange, a partner at law firm Elvinger Hoss Prussen. “They don’t want to be liable for management decisions. As lawyers, we see that reflected when drafting fund documentation,” she added.

LPs are also acting to preserve their individual interests and make clear they do not represent the LPs collectively in a fund, said Lifrange.

The panel also discussed the impact of the increased number of LPs making co-investments, with the level of conflicts of interest risk rising significantly, said Jerome Wittamer, founding partner at Expon Capital and president of the Luxembourg Private Equity & Venture Capital Association.

“Governance, especially to do with conflicts, is really an issue of potential conflict. Ultimately you can’t avoid them, so you better have a good rule-book on how to address them,” said Wittamer.

LPACs play a considerable role in fund governance, with 100 percent of LPs requiring them to be in place before considering making an allocation to a fund, according to research by Vistra, a fund services firm. But LPs diverge on how they want managers to govern the fund, said Wittamer.

“Some LPs want the application of every rule, and some are happy to just tick the boxes,” he said.