February 15, 2022
I am becoming increasingly concerned about the inherent conflicts of interest created by LPs bearing GP attorney fees (i.e., organization expenses).
To put it bluntly, LPs are paying GP attorneys to negotiate against us in LPA and side letter negotiations.
Even worse, we have started to hear anecdotally that these attorneys have begun to brag that they can get managers better terms (i.e., premium economics such as higher carried interest) if they hire these law firms. They are advising emerging managers to propose premium terms and that they are \"market\" (even in cases where the manager has unproven track records). They are also increasingly proposing outlandish terms and reduction in LP rights.
They are also incentivized to book hours. Therefore, they needlessly negotiate documents like LP side letters in order to book hours, even in cases where a LP has a existing relationship with a manager (and has negotiated a side letter for past funds).
I believe that GPs should be forced to bear this expense on their own dime. This would force them to better manage their attorneys in order to reduce costs and propose more reasonable terms (or use industry standard templates like proposed by ILPA).
Glad to discuss further if it makes sense.
Regards,
Chris Cassidy