News & Analysis

Development finance LPs back ILPA guidelines

The CDC Group, Asian Development Bank and Norfund are among a group of LPs who want to ensure ‘the next generation of emerging market private equity funds are raised on terms that reflect the principles’.

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A group of development finance-focused limited partners have endorsed the Institutional Limited Partners’ Private Equity Principles, becoming the first significant group of emerging markets investors to throw their support behind the guidelines.
The emerging market LPs include the Asian Development Bank, Belgian Investment Company for Developing Countries, the UK’s CDC Group, Germany’s Deutsche Investitions- und Entwicklungsgesellschaft, Finnfund, The Netherlands’ Financierings-Maatschappij voor Ontwikkelingslanden, Denmark’s IFU, Norway’s Norfund and France’s Proparco .
“Development finance investors historically have been significant supporters of the emerging market private equity industry – and expect to continue their support in the future,” said Mark Kenderdine-Davies , general counsel of the CDC Group, in a statement. “We are determined, however, to ensure that the next generation of emerging market private equity funds are raised on terms that reflect the Principles and feature improved governance and increased transparency.”
The ILPA guidelines, which were released in early September, are a set of terms and conditions and governance best practices that specify that management fees should cover reasonable operating expenses of the firm and not be “excessive”; that the general partners’ capital commitment to the fund should be substantial, with a higher percentage in cash; and that there should be stronger provisions to help avoid profit distribution imbalances between the GPs and LPs.  
 
Also, LPs should have stronger governance rights, and  GPs should be more transparent about fees and carried interest profits received, as well as portfolio company performance, according to the principles.
The $199 billion California Public Employees Retirement System endorsed the guidelines in September. To date, the majority of the 70-some organisations that have endorsed the guidelines are North American endowments, pensions, fund of funds and family offices, including Caisse de depot et placement du Québec, Hamilton Lane, Washington State Investment Board, GenSpring Family Office and PCG Asset Management.