Q&A: Kathy Jeramaz-Larson

What have you been hearing from LPs, GPs and other industry sources about how the ILPA principles are being used?

I was just at a recent industry conference where our guidelines were referenced to by at least four of the panel discussions that I attended and the sentiment was one of support. On top of that, I spoke to several senior level LPs and GPs (not only in Asia but at our GP Summit held in early November) that affirmed that having the guidelines has been a tremendous support. Ergo, I was very proud that three years after first being published, the Principles are still additive and helping to strengthen the asset class.

Have you heard of any specific terms or principles that GPs are finding particularly difficult to meet?

There are often terms that need significant negotiations between LPs and GPs depending on the size of the fund, the sector, the team, and which raise it is. I haven’t had one specific term that is universally unacceptable.

Can the markets expect a 3.0 version of the Principles?

Any further changes would be in the form of additional appendices. There hasn’t been a reason to deviate from that at this point. There are other topics brought to our attention, that we may address, but nothing for this year.

Any common misconceptions about the principles you would like to address?

I think the biggest misconception is that ILPA issued “terms” in its Principles that are expected to be adhered to by GPs and LPs. That just isn’t the case. We would never tell a LP how to runs its program. I think the other point would be that most GPs have appreciated the effort, provided us with suggestions for improvements and, if a good GP, have been able to articulate to their investors why they are uncomfortable with a particular issue. Again, it comes down to communication and transparency and helping the LP understand why they should agree to terms within the Limited Partnership Agreement (LPA).

Can you provide an update report on the recently unveiled ILPA tool that allows investors to quantify how well a fund adheres to ILPA’s best practice principles?

After we produced the Private Equity Principles, a lot of GPs and LPs were asking us for a means of measuring the alignment of a fund to the Principles. For GPs, they were looking for a way to ensure the LPs fully understood their fund and value of terms and for the LP, they were looking for a way to focus discussions on areas where alignment may have been considered somewhat weaker (by the LP undertaking the exercise). To that end, we created an online application form that LPs or their lawyer completes; answering several questions that are weighted and rated based on the dynamic responses of the user.

While a numerical value is generated at the end of the process, the interpretation of that number is a LP’s decision based on individual circumstances. The tool allows LPs to benchmark the fund’s LPA against their peer group by looking at aggregated stats collected from other LPA’s within a like sample. These comparisons are offered in aggregate, rather than at that fund level ensuring no GP-LP confidentiality agreement is breached.

It should be noted that the questions address the issues that are directly cited in the LPA; subjective elements are dealt with through conversations between institutional investors and their private equity advisors.