💼 Negotiating Co-GP Deals, Part 5

Who makes the decisions?

🎉 Happy Friday, funds family!

This is the fifth in a multi-part series on 💼 Negotiating Co-GP Deals. This week, we’re going to discuss how co-GPs share management authority.

But first…

/ SELF PROMOTION

If you’re a sponsor (GP) raising an investment fund or syndication in private equity, private credit, real estate, or venture capital, we may be a good fit for you. We also represent limited partners (LPs) investing in funds and syndications.

Thanks for reading. Now, let’s jump into the article 😃 

🤔 The First Question: Member-Managed vs. Manager-Managed

When determining the management structure for a co-GP vehicle (or really…any LLC), the first question is whether the entity should be member-managed or manager-managed.

  • Member-managed entities generally permit all members to vote, and a majority (or some other percentage) of “yes” votes is required to make decisions.

  • Manager-managed entities appoint a day-to-day manager (who might also be a member) to shoulder most management duties.

If the two parties are truly equal and both want to get their hands dirty, they might opt for a member-managed structure. On the other hand, if the capital provider’s principal job is really only to provide money, they might agree to a manager-managed structure with the operator taking charge of day-to-day tasks.

✅ Major Decision Rights

In many cases, the co-GP agreement will have a list of major decisions that require a special vote. In a member-managed LLC, a supermajority vote might be necessary. In a manager-managed agreement, major decisions may require the consent of the non-managing member.

Common major decisions include:

  • Amending the LLC agreement

  • Admitting new members or diluting existing members

  • Permitting transfers of interests

  • Expenditures or litigation settlements above a certain dollar value

  • Shutting down the co-GP or the underlying fund

  • Material decisions related to the underlying fund’s investments (e.g., buying, selling, refinancing)

  • Many other things (these lists can be long)

💰️ Investment Committees

Many GP-level agreements establish a formal investment committee. Key terms include:

  • Composition: Operator appointees versus capital provider appointees, often weighted toward the operator but with minority representation for the capital provider.

  • Voting thresholds: Investment committees often require a majority of votes to make investments, but agreements differ.

  • Veto rights: Capital providers may negotiate a negative consent right on specified investments, concentration limits, or deviations from the agreed strategy.

In some funds, GPs bring on external investment committee members, who may be compensated for their work (either with cash or carried interest).

 👨‍👩‍👦‍👦 The Advisory Committee

Capital providers often negotiate the right to designate a representative to the fund’s LP advisory committee (LPAC) or other fund-level boards. This ensures visibility into conflicts, valuation, and compliance. The LPAC is basically a group of LPs that grants the GP permission to take certain actions under the fund’s LPA.

/ WRAPPING THE CASE

  1. Co-GP agreements are typically manager-managed or member-managed, with major decisions requiring special consent rights.

  2. Many co-GPs have a separate investment committee tasked with investment decisions.

  3. In some cases, the capital provider might request a seat on the fund’s limited partner advisory committee.

Thanks for reading, everyone.

Have a great weekend! 🙌 

/ JURY TRIAL

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