ILPA to issue guidance on GP-led restructurings

The Institutional Limited Partners Association will issue an update to its private equity principles that includes guidance on GP-led restructurings as early as this year.

The industry body, which has around 450 member institutions globally representing at least $2 trillion in private equity assets under management, has been discussing the issues surrounding these deals at its events, Jennifer Choi, ILPA’s managing director of industry affairs, told PERE sister publication Secondaries Investor.

“Our sense is that [GP-led restructurings are] becoming more commonplace because LPs are seeking to restructure portfolios, they’re seeking liquidity solutions, GPs want to offer optionality and secondaries dry powder is tremendous,” Choi said. “Guidance now feels like something we need to do in the context of the third iteration of the principles, but also on a standalone basis with some education wrapped around it for the industry,” Choi said.

Recent GP-led restructurings in private real estate include Partners Group’s acquisition of an office portfolio from Swift Real Estate Partners and CBRE Global Investment Partners and Madison International Realty’s purchase of a Spanish residential portfolio from Azora.

Secondaries deals have caught the attention of the Securities and Exchange Commission sporadically over the last few years. On 7 September the watchdog fined Veronis Suhler Stevenson $200,000 over the mid-market private equity firm’s failure to disclose a material change to the valuation of one of its funds to LPs.

In 2016 a managing partner at Maryland-based Blackstreet Capital agreed to pay the SEC $3.1 million to settle charges that he bought stakes from LPs in the firm’s second fund and subsequently directed capital calls to be waived on his own fund stakes.

ILPA will engage with GPs about restructurings, Choi said.

“With GP-led transactions, every deal is a snowflake.”

Jennifer Choi

“It really comes down to, how transparent are the interests of the participants involved? Have the conflicts been fully disclosed and mitigated to the extent that they can be. Are the potentially selling or rolling forward LPs being given the option to do so on a status quo basis, ie, with no reset of the economics? These are the sorts of questions that are starting to emerge that you’ll see in the guidance coming from ILPA in the months ahead.”

Choi likened the issue of best practice around GP-led restructurings to that of subscription credit lines, which was a “slow build”. “One day it was just felt like everyone was asking us to issue guidance. We couldn’t issue it fast enough,” she said.

In June last year ILPA issued a nine-point guidance document on the use of credit facilities and encouraged LPs to be proactive in seeking information.

ILPA will take its time to ensure its guidance on GP-led restructurings is appropriate and measured, Choi cautioned.

“We wouldn’t want to push to publish before we felt like we had as close to the right answer as possible because these are nuanced topics,” she said. “With GP-led transactions, every deal is a snowflake.”