Demystifying fund governance

Traditionally, fund governance involved two groups:

  • Investment Committee (generally Partners of the GP), with no external input or perspectives.
  • Limited Partner Advisory Committee (LPAC), who deal with issues such as conflicts of interest, compensation of GPs, fund life extensions, and key-person actions. It is a mostly homogenous group that holds the IC accountable.

The current best practice is to have three committees that govern and advise impact funds:

  • Investment Committee (IC): The IC should have broad expertise over all of the fund’s activities, and is generally only GP members. It can have additional members beyond the GPs to fill specific gaps, but most LPs prefer that it includes only the senior leadership of the GP. There should be no LPs on your IC to avoid conflict of interest and to limit their liabilities.
  • Limited Partner Advisory Committee (LPAC): The LPAC includes Limited Partners (LPs) and can have members appointed by LPs, but the GP also needs to approve them. The ideal time to form this committee is at first close.
  • GP Advisory Board (GPAB): The GPAB is intended to provide valuable investment and strategy advice to the GP. Typically this board comes together gradually as you find the right members. Members should bring investing/operating experience and/or deep geographic or sector knowledge. While they can provide advice, they have absolutely no IC decision making authority. Some LPs can be in this committee, but, again, their role is only to advise the GP, without undue influence.

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