Most of the time LPs’ interests will be fully aligned with each other. On some occasions, however, situations can arise where LPs’ interests can conflict. For example, if an investment has been made by two funds of different vintages managed by the same GP, then a conflict may arise between the funds (and hence the different LPs in each) with regards to the timing of the exit, or in relation to making any follow-on investment. Similarly, if an investment is being sold by one fund managed by the GP and bought by another that the GP manages, then conflicts may arise between the two funds over the valuation placed on the portfolio company.
If some LPs have co-invested in a portfolio company alongside the fund’s GP, circumstances could arise in which these LPs’ interests may conflict with those of LPs who have not co-invested.
Whenever any conflicts arise, it would be expected that the GP will consult with the LPAC of the relevant fund(s) and, where advisable from a limited liability perspective, seek its approval.
When LPs are consulted by the GP on a situation likely to involve a conflict of interest between any of the LPs, they should promptly disclose all conflicts they may have to the GP and the other LPs of the relevant fund(s). In this way the situation can be discussed in an open manner, subject to applicable confidentiality obligations. The context in which views are expressed can be better understood, so enabling conclusions to be arrived at which are based on as full an understanding of everyone’s position as possible.