🛠️ Investment Fund Key Terms, Part 30

🎉 Happy Friday, funds family!

Today, we have Part 30 in our many-part series walking through each term in an investment fund term sheet in detail.

Here’s the index of each article in this series (so far):

This week focuses on Conflicts of Interest.

Every private fund has potential conflicts. Because the GP, management company, and their affiliates often sponsor multiple vehicles, invest personally, or provide services to the fund, situations can arise where their interests are not perfectly aligned with those of the LPs. ⚖️

➡️ Where do conflicts typically arise?

Common examples include:

• Allocation of investment opportunities among affiliated funds

• Purchase of warehoused investments

• Cross-fund transactions

• GP or affiliate loans to the fund

• Service arrangements between the fund and sponsor affiliates

These are normal in private fund structures, but they must be disclosed and properly governed.

➡️ How are conflicts addressed?

Most fund agreements include guardrails such as:

• Requiring LPAC or majority-in-interest LP approval for material affiliate transactions

• Priority allocation provisions during a defined "restricted period"

• Limits on affiliate lending terms

• Disclosure obligations in the PPM and annual reporting

• Policies around personal investments by GP personnel

➡️ The role of disclosure

Disclosure is the baseline. The PPM should describe all material conflicts — not just theoretical ones, but the specific ones that are likely to arise given the sponsor's business.

The SEC has made clear (especially in enforcement actions and through the now-vacated private fund adviser rules) that vague or boilerplate conflict disclosures are insufficient.

➡️ Practical tips for GPs

• Be specific in your PPM about how conflicts will be handled

• Document all conflict-related decisions

• Use the LPAC as a governance tool for real-time conflict resolution

• Don't assume that disclosure alone satisfies your obligations — process matters too

➡️ LP perspective

LPs should review conflict provisions carefully during due diligence. Key questions include:

• Does the GP have other funds or businesses that could compete for deal flow?

• Are affiliate transactions subject to independent review?

• Is the LPAC empowered to approve or reject conflicted transactions?

• What are the reporting obligations around conflicts?

Thanks for reading, everyone.

Have a great weekend! 🙌

⚠️ Note: This newsletter is for informational purposes only and nothing should be considered legal advice. For that, hire a lawyer! I am a lawyer, but not your lawyer (unless I actually am your lawyer because you’ve signed an engagement letter and we’re working together). This newsletter may be considered attorney advertising.