Investing in PE Funds and Understanding the LPA
Why It’s Important to Review the LPA
One of my colleagues was looking at investing at a tech Growth PE fund and we discussed the importance of reviewing not only the Subscription Agreement and the PPM, but also the LPA.
Even if you’re investing a smaller amount, once you’re in the PE fund you’re bound by exactly the same terms as investors writing $5M or $50M checks. The LPA governs things that materially affect your economics and protections:
| Key Area | Why You Should Read It |
|---|---|
| Capital call rules | How much notice you get, penalties for late payment, and consequences (forfeiture or dilution). |
| Distributions & waterfalls | How and when profits are paid back (return of capital, preferred return, carry triggers). |
| Fees & expenses | Confirms what can or can’t be charged to LPs (including broken-deal costs, consultants, ops partners). Understand what is covered by the typical 2% Management Fee vs. Fund Fees. |
| GP powers & conflicts | Details what the GP can do without LP consent — side letters, related-party transactions, co-investments. |
| Key-man & suspension clauses | Defines what happens if a managing partner leaves (important for continuity). |
| Removal rights & LP protections | Describes when LPs can remove the GP “for cause” and how LPAC oversight works. |
| Clawback provisions | Ensures the GP repays excess carry if early realizations later reverse performance. |
| Transferability / liquidity | Confirms you can’t sell or transfer without GP consent (important if you ever need liquidity). |
What else, what are some of the other key areas you should understand in the LPA before you invest?