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Preqin launches new solution to reveal market rate of private fund LPA terms

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Preqin has announced the launch of Term Intelligence, writing that this latest offering introduces one of the largest searchable databases of Limited Partner Agreement (LPA) terms globally and enables enhanced private fund negotiations.

The firm says that by accessing this innovative database, alternative fund managers, investors, and their legal advisors can expect to benefit from greater clarity when reviewing and benchmarking LPA terms. Ultimately, Term Intelligence makes it possible to see whether the terms are competitive within the market, and whether these terms, as well as the fees and expenses, are aligned with market standards to support LPA negotiations. 

Preqin writes that it introduced Term Intelligence to help mitigate the complications industry professionals face when drafting and negotiating LPA terms. Investment professionals on both sides of the table find the process of investing in a fund, including the legal due diligence and negotiations, to be complex and time-consuming.

“Prior to the release of Term Intelligence, the industry had limited data on LPA fees and terms and there was a lack of standardisation despite the provision of model form LPAs and guidance by the Institutional Limited Partners Association (ILPA) through the ILPA Principles 3.0. 

“Because of this, it has traditionally been difficult to know which LPA fees and terms meet market rate and by extension, how to distil the true cost implications across the fund’s life. While some large law firms already have an internal database of LPA terms that they have previously worked on, such databases may provide limited insight into market practices for LPA terms. This is because they only have access to their own firm’s past records – making it difficult to win clients in new areas or better serve existing clients in changing markets.

“Now with Term Intelligence, investors can conduct thorough pre-investment due diligence on fund terms, with the assurance that they have visibility over an objective baseline for what constitutes a market rate. Meanwhile, fund managers are able to compare LPA terms to a cross-section of funds, helping them draft competitive data-backed fund terms to secure needed capital for fundraising purposes. Finally, law firms can provide data-driven guidance to their investor or fund manager clients and expedite LPA negotiations. 

“As part of Term Intelligence’s data collection process, LPAs are provided by investor services offered by Colmore, a Preqin company. Information captured from LPAs is extracted, reviewed, anonymised, and aggregated by a specialized team of in-house attorneys, before being added to the Preqin Pro platform where clients can easily access it. This underlying dataset represents one of the largest databases of LPA terms globally, covering over 4000 LPAs to feed the growing terms benchmarks.”

Nicholas Donato, SVP, Head of Service Providers, at Preqin, says: “We are delighted to bring Term Intelligence to market to allow investment professionals, attorneys, and advisors to benchmark and compare economic and non-economic fund terms to a wide universe of LPAs, providing our clients with the clarity needed to negotiate with confidence.”

Heather Heys, VP, Head of Legal Insights, at Preqin, notes: “There remains real variation in the drafting in LPAs, for example, in how costs are allocated within the partnership. It is of key importance for investment professionals to understand what the market standard is for LPA fees and terms.”

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