The Institutional Limited Partners Association issued new guidance on the longstanding practice of limited partners bearing the cost of fund formation legal expenses.
“What once made economic sense—requiring LPs to cover organizational expenses when the industry was nascent and GPs lacked sufficient capital—has become an outdated practice that now enables systematic cost-shifting by highly profitable asset managers to their investor clients.”
The ILPA guidance proposes:
- A cap organizational expenses at the lower of 5 bps or $10 million,
- If this cap is exceeded, implement a 50-50 cost sharing framework for total amount over the cap, and
- increase legal fee transparency and legal budget discipline.
ILPA pulls data from an Albourne Partners market survey of almost 2,000 funds. It found an upward trend in median organizational expense caps growing from roughly 20 basis points in 2019-2021 to approximately 25 basis points by 2024-2025.
Sources:
- The Alignment Gap: Rethinking Costs in Private Equity Fund Formation
- ILPA 2026 Organizational Expense Guidance
- Albourne, Examining the Alignment of Interest in 2025, ILPA Legal Conference, September 25, 2025.