When drafting the Limited Partnership Agreement (the “LPA”), the distinction between the Limited Partner Advisory Committee (the “LPAC”) and the Investment Committee (the “IC”) of the fund manager can give rise to role ambiguity, particularly in fund structure where an investment advisor -typically operating its own internal investment committee - is also involved.
While such internal committees may be binding on the investment advisor or the fund manager for internal governance or compliance purposes, they generally operate outside the fund’s governance framework and have no authority under the LPA.
This article focuses on the IC established within the fund manager and the LPAC constituted under the LPA, examining their respective functions, oversight roles, and perceived authority within GP/LP structures. Although the IC does not have legal standing under the LPA, it remains central to the fund’s investment decision-making process. This comparison is particularly relevant to GP/LP structures in the Dubai International Financial Centre (“DIFC”) and the Abu Dhabi Global Market(“ADGM”).
Although their names may suggest functional overlap, their respective composition, authority, liability, and governance roles differ significantly. A clear understanding of these distinctions is critical for sponsors, legal counsel, and investors alike to ensure that the fund’s governance framework is appropriately balanced and that internal decision-making processes do not unintentionally conflict with investor oversight mechanisms.
A clear understanding of these differences enables fund counsel and stakeholders to maintain governance clarity, mitigate the risk of role confusion, and appropriately separate advisory input from formal decision-making authority.
1. Definition:
In DIFC and ADGM fund structures, the General Partner acts as the legal representative of the fund but does not typically perform regulated activities, including investment decision-making. Accordingly, the IC operates under the Fund Manager’s internal governance framework and regulatory obligations, and is responsible for reviewing and approving investments in line with the fund’s strategy. Although the LPA may refer to the IC, it does not confer any governance authority on the IC. It remains an internal body of the Fund Manager and does not include, nor report to, Limited Partners. Its authority derives solely from the Fund Manager’s internal delegation and compliance structure.
The LPAC is a consultative body formed by the General Partner under the LPA, comprising representatives from selected Limited Partners. The number of members typically depends on the size of the fund and is usually drawn from Limited Partners with the largest commitments or those with specific experience or strategic relevance. Its role is to advise the General Partner and provide approvals, whether binding or non-binding, depending on the negotiated terms of the LPA, on specific matters, typically including conflicts of interest, valuation methodologies, and key person events.
While not a formal governing body of the fund entity itself, the LPAC is a contractual creation of the LPA that enhances investor oversight without conferring management authority or fiduciary duties. As a product of the LPA, the LPAC’s role, mandate, composition and scope of authority will vary from one fund to another, reflecting the outcome of negotiations between the General Partner and the Limited Partners.
2. Roles & Responsibilities:
a) Limited Partner Advisory Committee:
The LPAC’s role is determined by the LPA and can range from a non-binding, consultative function to one involving formal consent rights. Meetings may be convened periodically or on a case-by-case basis, depending on the matters requiring consultation or consent.
In practice, the primary function of the LPAC is to provide non-binding advice to the General Partner in connection with actual or potential conflicts of interest and to review, and where applicable, provide input on, the valuation of portfolio investments and the methodologies used in determining such valuations. These consultative functions are designed to enhance transparency and protect the interests of the Limited Partners, particularly where the General Partner exercises discretion.
Beyond its advisory role, the LPAC might be granted consent rights over certain fund-level matters. These may include approving extensions to the commitment or investment period, consenting to investments exceeding predefined thresholds, or authorising the fund to incur indebtedness or approving extensions of the fund’s term beyond its initial duration. The LPAC may also be called upon to authorise capital drawdowns during a key person event for specific purposes expressly permitted under the LPA, approve or confirm the allocation of co-investment opportunities to strategic or affiliated investors, and consent to the appointment or replacement of key persons under the fund documentation.
Ultimately, the LPAC’s scope of authority is fund-specific and reflects the outcome of negotiations between the General Partner and key investors. Depending on how the LPA is structured, the LPAC may act as a central decision-making checkpoint on sensitive matters or may operate solely in an advisory capacity without binding authority.
b) Investment Committee:
The IC plays a central role in the Fund Manager’s internal governance framework and is primarily responsible for reviewing and approving investment and divestment decisions. Acting within the scope of the fund’s investment strategy and risk parameters, the IC ensures that proposed transactions are consistent with the fund’s objectives, comply with internal policies, and align with regulatory obligations. It also monitors portfolio construction and allocation limits, oversees adherence to risk controls and conflict-of-interest procedures, and ensures consistency with the fund’s investment guidelines.
In practice, the IC is composed of senior members of the investment team and convenes at regular intervals, or on an ad hoc basis, to assess proposed transactions. Decisions are made based on pre-defined quorum and voting rules, and all approvals are documented in accordance with internal compliance protocols. The IC typically oversees the due diligence process, reviewing internal analyses and third-party reports to ensure investment risks are adequately addressed. It also monitors portfolio-level performance and risk, taking into account macroeconomic developments, stress-testing outcomes, and liquidity constraints. The IC plays an important role in validating exit strategies and divestment terms, ensuring alignment with the fund’s liquidity profile and investment horizon.
3. Investor Oversight and Investment Discretion:
In practice, a clear separation between the LPAC’s oversight function and the IC’s decision-making authority is essential, particularly in fund structures involving delegated management or multiple advisory entities. Ambiguities in governance can lead to inefficiencies, legal exposure, or misaligned investor expectations. To mitigate these risks, sponsors should ensure that the LPA clearly defines the governance roles and that any supporting agreements, such as the Fund Management Agreement, are consistent in terms of delegation and decision-making authority. This is especially critical in DIFC and ADGM environments, where regulators increasingly focus on the integrity of fund governance and the substance of delegated arrangements.
4. A Final Thought:
In conclusion, clear governance structuring is essential to maintaining alignment between investor protections and fund manager discretion. Distinguishing the roles of the LPAC and the IC at the drafting stage helps avoid ambiguity and strengthens the integrity of the fund’s operating framework.
For further insights into fund structures and governance, please contact the Private Funds team at lecocqassociate.
Shahin Dehkohneh
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