Private equity special report: LPACs

LPACs might, or might not, provide serious oversight of the GP but what is equally important is who is invited to be on the LPAC in the first place. Research that IFI Global conducted a couple of years ago into LPAC selection suggested that size is easily the most popular criterion for selection to the committee. Most GPs surveyed select LPs simply by size of their allocation to the fund. If an LP’s allocation constitutes at least 10% of the fund it is generally thought they have a right to be on the LPAC.

Some GPs invite LPs to be on the LPAC simply because they know and like them but generally speaking it is size that matters. What smaller LPs often ask for is that there should be proportional selection. Proportional selection aims to represent all the LPs in the fund. It includes selection by investor size/sector/country/region. According to IFI Global’s research some GPs do go in for this, but not that many.

To read more on this story see the December issue of The NED.