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FRM Part II · FRM Exam Part II · Private Markets Investing

A limited partner advisory committee (LPAC) of a private fund is asked to approve a cross-fund transaction in which the GP sells an asset from its older fund to its newer fund. What is the primary governance purpose of LPAC review in this situation?

The LPAC reviews conflicted transactions like cross-fund sales because the GP sits on both sides of the deal. Its role is to assess fairness of pricing and terms, not to manage investments, guarantee returns or replace the auditor.

  1. ATo address conflicts of interest by reviewing the pricing and terms where the GP is on both sidesCorrect
  2. BTo manage the day-to-day investment decisions of the fund
  3. CTo guarantee a minimum return to LPs
  4. DTo replace the independent auditor of the fund

Explanation

LPACs typically consent to or review conflicted matters such as cross-fund trades, valuation disputes and fee related issues. They do not run investments, guarantee returns, or act as auditors; LP involvement in management could also jeopardize limited liability.

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