The right terms (Editor's Letter)

This issue of PEI Manager is devoted to terms and conditions, and in particular to those terms and conditions that, like the current debt markets, haven't reached an established level yet.

As any participant in this market knows, some partnership terms are essentially set in stone, such as the LPs' right to vote on the fate of the partnership if a key man gets hit by a bus. Other terms vary from vehicle to vehicle depending on which party had the most leverage, and even on which party cared the most.

After speaking with partnership experts and advocates for both LPs and GPs, we identified a few areas of flux, a discussion of which we hope you find interesting and illuminating:

Side letters – LPs want lots of these and GPs don't want any. Compromise has tended to involve the creation of side letters that govern investment restrictions and disclosure.

Fiduciary duty – When GP's identify new opportunities midway through a fund's investment period, the language in the LP agreement typically is vague enough to allow them to pounce. But the rules of good relations dictate call for carefully worded amendments.

Co-investments – As an LP, depending on who you are, how big you are and how lucky you are, you may or may not be paying carry on your next co-investment, in addition to a myriad of other terms that are essentially dictated by the GP.

Management fee offsets – This useful structure appears safe from legislation, but other innovative fee schemes may not be. Be sure to tune in to the November issue of PEI Manager, which will delve into the complexities of budgeting and GP management. In the meantime, enjoy the original and expertcontributed commentary on terms and conditions in the issue you now hold.

Best,

By David Snow
David.s@peimedia.com