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Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation, and Documentation by Jason A. Scharfman

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CHAPTER 10

Boards, Committees, and Activism

After a new private equity fund has been established from a legal perspective the General Partner will go through a fundraising period during which capital allocations are sought from third-party investors. At this stage, after the fund has already been established as a legal shell, many of the key decisions related to items such as fund terms have already been decided by the GP and memorialized in the core fund documentation such as the offering memorandum for the fund. While in certain cases the GP may be open to revising such documentation based on investor feedback received during the due diligence process, in general most of these basic fund terms and decisions have been effectively set in stone.

PRIVATE EQUITY FUND ADVISORY BOARDS

One common feature of private equity funds that is quasi–set in stone at the time of the forming of most funds relates to a fund governance committee that is commonly known as an advisory board.

An advisory board is a board that typically consists of several representative investors who provide advice to the GP regarding the management of a fund. There is no requirement, legal or otherwise, that a private equity fund must maintain an advisory board. In reality, most private equity fund advisory boards’ roles focus more on fund governance than they do on the role as consigliore. This makes sense because in effect they are supposed to be providing advice to the GP or fund manager that they have hired because ...

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