On January 11, 2011, the Institutional Limited Partners Association (“ILPA”) released a revised version of its Private Equity Principles (the “ILPA Principles”) and the first of its five recommended standardized reporting templates. A copy of the ILPA Principles is available here.
Since ILPA first published “Version 1.0” of the ILPA principles in 2009, it has received the endorsement of 140 industry organizations, consisting primarily of limited partner industry participants. The updated version of the ILPA Principles, known as “Version 2.0,” was released after receiving feedback from limited partners, general partners and other industry participants.
Version 2.0 of the ILPA Principles continues to adhere to the guiding principles of: (1) alignment of interest; (2) governance; and (3) transparency. The ILPA Principles include three new appendices regarding Limited Partner Advisory Committee Best Practices, Carry Clawback Best Practice Considerations and Financial Reporting. ILPA provided these appendices with additional detail on specific aspects of application of the guiding principles to offer a “deeper dive” into more complex issues. For example, the Carry Clawback Best Practice Considerations continues to endorse “European-style” full return distribution waterfalls, but provides additional recommendations in the event a “deal-by-deal” waterfall is used, such as establishing NAV coverage tests and interim clawbacks. The Carry Clawback appendix also recommends fair treatment of the tax burden associated with carry clawbacks, essentially stepping back from a more aggressive position regarding tax distributions in the original version of the ILPA Principles. ILPA believes the carry clawback calculation should be based on the actual tax situation of the General Partner and its principals, rather than assuming the highest hypothetical marginal tax rate for a particular jurisdiction, which substantially complicates the clawback calculation. ILPA indicated that they may provide additional appendices on other topics as industry practices evolve.
ILPA has also released the first of a series of Standardized Reporting Templates. An Excel® version of the Capital Call and Distribution Notice Template is available on the ILPA website. ILPA indicated that Standardized Reporting Templates for annual and quarterly reporting and performance metrics are also in development. ILPA stressed that the templates are being developed in consultation with general partners.