Limited Partnership Agreement (LPA)

The Limited Partnership Agreement (LPA) is the core legal document that governs a private fund. It sets the rules of the fund: economics, governance, reporting, capital calls, distributions, key person events, removal rights, conflicts, and amendment thresholds. For allocators, the LPA is not “legal cleanup.” It is the operating system that determines whether the fund behaves predictably when things go wrong.

From an allocator perspective, the LPA is where the real deal lives. Pitch decks describe intent. The LPA defines enforceable reality.

How allocators define LPA risk drivers

Allocators evaluate LPAs through:

• Governance rights: LPAC scope, consent thresholds, amendment rules
• GP power vs LP protections: removal, suspension, key person, no-fault terms
• Economic mechanics: fees, expenses, carry, preferred return, recycling
• Conflict framework: allocation policies, cross-fund conflicts, related parties
• Liquidity and transfers: restrictions, permitted transfers, side pocket rules
• Reporting obligations: cadence, transparency, valuation policy references
• Down-cycle behaviors: extensions, write-down governance, clawbacks

Allocator framing:
“Does the LPA create a disciplined system—or does it concentrate power and discretion with weak accountability?”

Where LPAs matter most

• first-time managers and emerging GPs
• multi-vehicle platforms with allocation conflicts
• strategies with valuation discretion and longer duration
• funds likely to use extensions, recycling, or subscription lines heavily

How LPAs change outcomes

Strong LPA discipline:

• reduces governance friction and accelerates decisions
• creates enforceable accountability under stress
• lowers conflict risk and reputational exposure
• improves re-up probability because expectations are clear

Weak LPA discipline:

• increases hidden optionality for the GP
• creates renegotiation dynamics during stress
• amplifies conflict and allocation disputes
• raises allocator concerns even if strategy is attractive

How allocators evaluate LPA discipline

Conviction increases when LPAs:

• define clear LPAC scope and consent thresholds
• include practical protections (key person, removal rights, limits on discretion)
• present economics and expense rules transparently
• reduce ambiguity around conflicts, allocations, and amendments

What slows allocator decision-making

• vague conflict language and broad GP discretion
• heavy amendment flexibility with low LP thresholds
• unclear expense allocation and affiliate arrangements
• governance rights that look strong on paper but are unusable in practice

Common misconceptions

• “LPA is legal standard” → small wording changes create major economic outcomes.
• “We can fix it in side letters” → side letters increase governance complexity.
• “Only economics matter” → governance controls outcomes in drawdowns.

Key allocator questions during diligence

• What are the removal and key person provisions, and how usable are they?
• What requires LPAC or LP consent (conflicts, valuation, extensions)?
• How are fees, expenses, and affiliate costs allocated?
• How do distributions, recycling, and clawbacks work in practice?
• What changes can be made without broad LP approval?