Decision Veto Rights

Decision Veto Rights are the mechanisms that allow individuals or functions to block an investment even if a sponsor supports it. Veto rights may be formal (policy says compliance must approve) or practical (legal refuses terms; ODD fails controls; risk flags breach of limits). In many allocators, veto power is designed to prevent fiduciary, operational, or reputational failure.

From an allocator perspective, veto rights protect the institution. From a GP perspective, veto rights are the reason “we had a good meeting” can still end as a silent no.

How allocators define veto risk drivers

Allocators evaluate veto dynamics through:

• Formal veto gates: compliance sign-off, risk sign-off, ODD pass
• Policy vetoes: IPS constraints, exposure limits, prohibited strategies
• Legal vetoes: unacceptable terms, side letter conflicts, MFN exposure
• Operational vetoes: weak controls, poor reporting, provider instability
• Reputational vetoes: headline risk, conflicts, optics sensitivity
• Timing vetoes: missed IC deadlines or closing windows
• Ambiguity handling: how disputes are resolved and escalated

Allocator framing:
“Are veto conditions known and predictable—or discovered late when it’s too costly to fix?”

Where veto rights matter most

• first-time manager relationships
• funds with weak ODD posture
• complex governance environments (public allocators)
• strategies with heightened reputational sensitivity

How veto dynamics change outcomes

Strong veto discipline:

• reduces hidden risk and prevents bad approvals
• improves institutional defensibility
• creates clear standards managers can meet

Weak veto discipline:

• produces late-stage reversals and wasted work
• increases internal politics and blame-shifting
• encourages “soft no” instead of clear decisions
• creates inconsistent standards over time

How allocators evaluate veto governance

Confidence increases when:

• veto gates and standards are communicated early
• veto decisions are documented and explainable
• escalation paths exist (when disagreements happen)
• requirements are consistent across managers and cycles

What slows decision-making

• veto stakeholders introduced late
• unclear standards (“ODD doesn’t like it” with no specifics)
• inconsistent enforcement across managers
• legal and policy conflicts with side letter terms

Common misconceptions

• “If the CIO wants it, it happens” → veto gates can still block.
• “ODD is a formality” → ODD is often a hard stop.
• “Vetoes are political” → many are simply governance and fiduciary controls.

Key questions during diligence

• Who has formal veto power and at what steps?
• What are the most common veto reasons historically?
• What terms are non-negotiable for legal/compliance?
• What ODD standards are required to pass?
• How are disputes escalated and resolved?