Recommendations

Financial Resources GP Should Maintain

This article contains the information on what financial resources should the GP maintain. The GP should maintain adequate financial resources to allow it to continue to operate during the life of all funds under management.

Ilya Alkhimov, Svetlana Kotka

Jun 21, 2021 — 2 min read

Explanation

According to the local regulatory environment of the GP (including, where applicable, the AIFMD) or any of the entities through which it is authorised or carries on its management activities, minimum levels of capital adequacy and/or liquidity may have been prescribed. The AIFMD for example provides that both capital and cash or readily realisable securities must be higher than specific thresholds related to fixed overheads and assets under management as well as requiring the AIFM to maintain professional liability risk cover through appropriate insurance or additional own funds.

It is important that the GP plans its own financial resources to ensure that they remain sufficient to allow the GP to operate effectively and to implement the investment policies of the funds under management, over their entire life. Particularly as management fees typically decline later in a fund’s life, adequate planning over the life of the fund is needed.

Prior to their making a commitment some LPs may request due diligence information on GPs’ financial resources.

Recommendation

The GP should maintain adequate financial resources to allow it to continue to operate during the life of all funds under management.

The GP should implement internal financial reporting procedures to ensure that it effectively monitors its financial position on an ongoing basis.

In addition, GPs should be prepared to respond to requests for information on its financial resources.

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