Our Insight
Fund Documentation Essentials: What LPs Look For
Summary: A tactical article highlighting what institutional investors expect in LPAs, side letters, and governance terms. Great for first-time sponsors.
Fund documentation isn’t just legal paperwork—it’s the foundation of trust between sponsors and investors. Whether you’re launching a first-time fund or refining your offering for institutional LPs, your documents must be clear, consistent, and investor-ready. Here’s what Limited Partners (LPs) expect—and what sponsors must get right.
Core Documents LPs Review
| Document | Purpose | LP Expectations |
|---|---|---|
| Limited Partnership Agreement (LPA) | Governs fund terms, rights, and obligations | Clear waterfall, fee transparency, governance rights |
| Private Placement Memorandum (PPM) | Discloses strategy, risks, and offering terms | Honest risk factors, consistent with LPA |
| Subscription Documents | Formalizes LP commitment and legal representations | Accurate investor questionnaire, clear capital commitment |
| Side Letters | Custom terms for specific LPs | Fairness clauses, alignment with LPA |
What LPs Look For
“Don’t Overlook the Waterfall Clause”
LPs scrutinize how profits are distributed. A well-drafted waterfall clause should clearly define return of capital, preferred return (if any), catch-up mechanics, and carried interest. Ambiguity here is a red flag.
“Transparency and Control: The LP Playbook”
Institutional LPs expect:
- Advisory committee rights
- Conflict resolution mechanisms
- Key person provisions
- Removal rights (for cause or no-fault)
These terms signal sponsor accountability and governance maturity.
“Red Flags That Stall Fundraising”
- Inconsistent terms between PPM and LPA
- Overly aggressive fee structures
- Vague investment strategy or risk disclosures
- Missing or outdated regulatory language
LPs often walk away when documents feel rushed, recycled, or opaque.
Best Practices for Sponsors
- Align all documents—PPM, LPA, sub docs—before sharing with LPs
- Use plain language where possible; legalese doesn’t impress
- Include a clear summary of terms for quick LP review
- Engage counsel with fund-specific experience (not just general corporate law)
Final Thought
Fund documentation is your first impression—and your lasting contract. LPs invest in clarity, consistency, and credibility. At Shirley Choi & Co., we help sponsors craft documents that speak the language of investors and stand up to scrutiny.