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Excerpt: LPs Adopt More Active Role

Jim Hill, an attorney who works on private equity fund formation, was driving home from a board meeting about three months ago when he answered an odd telephone call.

It was a member of a state pension’s investment committee calling with a list of demands before agreeing to invest in a $700 million buyout fund Hill was representing. One of the demands: the authority to approve or disapprove the fund’s investments.

“I told him he should go back and talk to their lawyer, because that was so far outside of any LP’s request,” said Hill, the chairman of the private equity group for the Cleveland-based law firm Benesch. “I told him, ‘I don’t think you want to go there.'”

Hill got the impression that this committee member didn’t quite understand the typical relationship between limited and general partners. Such power would have effectively made the pension a general partner, thus losing its limited liability status and potentially exposing itself to untold legal risk. And indeed, the pension never revived the request.

But the anecdote is symptomatic of the swagger LPs are feeling today. More unified than ever , investors are demanding lower management fees, a seat on LP advisory committees, and more say on company valuations, conflicts of interest and other issues, sources said. To read more about the “activist” role some LPs are taking, read “Investors Adopt More Active Role in Partnerships,” in the upcoming issue of Buyouts, to be published May 23. Subscribers can read the full report here.

Follow Buyouts on Twitter @Buyouts. For information on how to subscribe, contact Greg Winterton at greg.winterton@thomsonreuters.com.