10.1.

17: Meetings and Committees

Meetings and Committees: Regardless of the allocation of technical legal power, well-drafted partnerships
contemplate investor input as a matter of good investor relations. An annual meeting between the
investors as a group and the managers has never been deemed to cross the forbidden boundary under any
version of the U.L.P.A. Such meetings tend to be reporting sessions, rarely the occasion for discussion of
substantive issues, but they are de rigueur Frequent written reports to the investors are a traditional
obligation of the managers, bringing the limited partners up to date on the performance of the portfolio
companies, new investments, and valuation changes. And, some agreements require the generals to hold
special meetings on the call of a specified percentage of the limited partners. Whether or not the
agreement so requires, more aggressive limited partners take the occasion for frequent private meetings
(Japanese investors are famous for this practice) with the managers. The most active limited partners are
usually those corporate investors to whom the deal stream is significant (including those investment
opportunities not favored by the managers) for purposes of possible direct investment or co-investment.
(To the extent the GPGP is required to show investment opportunities to the investors with a view to their
becoming co-investors with the partnership, the investors are said to enjoy window rights.)
[1]
Finally,
two standing committees are typically contemplated in the organizational documents: the Advisory
Committee and the Valuation Committee.
Advisory Committee
The Advisory Committee, whose members are often compensated by the partnership, is composed of
individuals selected for their technical and/or special expertise and not affiliated (ordinarily) with any of the
limited partners. The job of the Advisory Committee members is to do just what the name implies: to
provide advice and counsel on screening and making portfolio investments. The Committees formal
meetings are usually episodic; members are called on individually when a matter crops up in their area of
expertise. They are usually featured speakers at annual meetings of the limited partners, exploring new
and interesting areas of science. On occasion, members are given a percentage of the carried interest,
usually by becoming limited partners in the GPGP (thereby turning it into a GPLP).
Valuation Committee
The Valuation, or Evaluation, Committee has more specific functions. First, the Committee sits on the issue
of valuation, a particularly sensitive question in those partnerships in which the management fee is
measured by appraised asset value. The issue of valuation is also significant when assets are distributed in
kind, when a partner is being admitted or is withdrawing after the commencement of operations and,
perhaps most importantly from the managers standpoint, when managements performance is being
rated. Since limited partners are (either de facto or de jure) locked into the partnership for its 10-to 12-
year life, one might conjecture that the rating of portfolio performance on an interim basis is not
significant. However, most investment managers harbor the ambition to commence a second fund as soon
Page 1 of 2 10.1.17: Meetings and Committees - Encyclopedia - Library - VC Ex...
VC Experts, Inc., Expertise and Opportunity in Private Equity and Venture Capital

Copyright 2000 - 2009 VC Experts, Inc. All Rights Reserved.
Privacy Policy | Terms Of Use | Site Map | Contact Us
Website developed and powered by Rare Ideas, LLC.
Disclaimer: Literature and other private equity and venture capital-related materials publicly available on this website are provided
by VC Experts, Inc., and are for general informational and educational purposes only. VC Experts provides content and services that
are not legal services. An attorney-client relationship does not exist in connection with the non-legal services VC Experts provides.
as the fund they are currently managing is substantially invested.
[2]
The track record of investments in
the fund currently under management, therefore, is significant in enticing both current and new investors
to participate in the new fund. (See 24.14 for a discussion of proposals to standardize valuation
procedures.)
[1]
The existence of co-investment or window rights in favor of the limited partners as a group can cause
the GPGP thorny problems. Thus, how does the GPGP chose among limited partners competing for the
same investment? What if the business plan contains information the investors are not authorized to see?
Note that a critical exemption from the Investment Advisers Act of 1940 may depend on the GPGP not
rendering investment advice directly to the limited partners. See 14.23.
[2]
A fund may be substantially invested even though only half, more or less, of its cash has been
actually used to purchase portfolio securities; if the remainder is, as it usually should be, earmarked for
follow-on investments in the portfolio companies in which the fund currently has a position, then the fund
is deemed to be substantially invested.
Page 2 of 2 10.1.17: Meetings and Committees - Encyclopedia - Library - VC Ex...