Notes on Partnerships

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It is obvious that Peter and Diana have to adjust their fundraising strategy in several ways, otherwise the fund won't get started at all.
First the oce managers, as key families' trustees, play an important role. They not only view FVP9 as competition, but they also have objections regarding their own compensation { if any. These issues will surely have to be dealt with upfront if they want to gain the trust of the families and their intermediary trustees { the family oce managers and banks where the families have been consolidating. The Advisory Board should be viewed as an opportunity to embark these trustees in structures that lead to a more LP10 friendly governance. As Peter and Diana have a proven track record and gained considerable expertise in the private equity industry including investments by wealthy families, they have a good starting point to work on that. This is clearly a bene t they could stress. Other strengths they could highlight are the strong relationship with auditor and tax advisor Arthur Andersen, the alliance with the Family Oce Exchange and the establishment of an Advisory Board of limited partners and other experts.

As of utmost importance, the terms and conditions should be written more LP friendly, and thus be renegotiated. Limited Partners nd the following terms the most important and are likely to focus their attention rst on:

 Waterfall structure, carry calculations,
 Clawback provisions,
 Management fees,
 GP11 capital commitment,
 Investment strategy, limitations and guidelines, and
 Permitted activities of GP's.
It is quite amazing that some important terms, as downside protection (including clawback provisions) and restrictive covenants are apparently missing! Below are some comments on the terms, including suggestions to make these more attractive to the investors.  Investments { At this moment, it is not clear what the 'secondary purchases' are, and what their scope could be.

 O ering { The minimum subscription of $2 million is a good idea as to establish a hurdle or criterion to lter and select the investors carefully. But as it may be waived (by the GP, not the Advisory Board), bigger investors might become suspicious: 'how will my voice be heard if I put in $5 million and some others only $500,000?' The call period over 5-8 years seems to be starting very late. Investors might be reluctant to have their committed capital 'sleeping, available at hand, almost liquid' over such a long fund-raising period. Although, just-in-time drawdowns of capital as needed have become the norm12. 9Fox Venture Partners

10Limited Partner
11General Partner
12Note on Limited Partnership Agreements, Case # 5-0019, Center for Private Equity and Entrepreneurship, Tuck School of Business at Dartmouth.

 Term { A lock-in of 12 to 15 years is too long. Extensions are at the discretion of the GP, and not of the Advisory Board. Even after, termination of FVP is dicult as it requires a majority vote.

 Redemption, Withdrawal, Transfer { The penalty upon redemption is 'a' discount, but how much exactly? As FVP limits the pay out to 5% of its net asset value, what will be the governing mechanism if there are more investors willing to withdraw? The GP decides upon the transfer. Where is the

exibility? Exit could be made subject to the Advisory
Board's approval (but what governing voting/deciding will be used?).  Limited Partner Meetings { Need to make sure, however, that the timing and agenda are aligned with the Advisory Board meetings.

 Operational Expenses { Transparency is to be provided.
 Reports { The Advisory Board might disclose information as well, in order to inform the LP's.
 Allocations { What if losses occur? These will be almost fully allocated to the LP's. There is no downside protection foreseen for the investors. Also the waterfall provisions are not mentioned here: what rules are established to allocate the pro ts?  Distributions { No clawback provisions...
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