Understanding Heterogeneity In Fund Governance Provisions: Evidence On Preferential Treatment And Key Person Clauses In Limited Partnership Agreements

This dissertation examines two governance provisions embedded in Limited Partnership Agreements - privately negotiated contracts that bind investors to capital commitments of a decade or more, offer little room for renegotiation or exit, and are drafted by the agent whose incentives they are designed to align. In exchange for limited liability, investors relinquish managerial rights and retain only partial visibility into the fund's operations, making ex-ante contractual design the primary mechanism of investor protection in private market funds. Yet the provisions embedded in these contracts remain opaque, heterogeneous, and almost entirely unstudied at scale. Using a novel dataset of 551 LPAs spanning 349 sponsors across buyout, venture capital, growth equity, real estate, and private debt strategies over the period 2006-2024, this dissertation asks in each case whether observed heterogeneity is better explained by GP bargaining power or by their need to credibly signal quality under precontractual uncertainty.
Chapter 1 focuses on preferential treatment provisions - side letter authorization, Most Favored Nation clauses, and transparency terms. Qualitative contractual language is translated into structured variables and tested against sponsor age, fund sequence, fund size, investment strategy, legal tradition, AIFMD scope, and legal counsel identity, using logistic regressions. Results are more consistent with the bargaining power hypothesis: stronger, more established GPs tend to restrict investor accommodation, imposing standardized and constrained terms rather than opening space for bilateral negotiation. Beyond sponsor characteristics, the regulatory environment and legal counsel identity emerge as independent determinants of contractual design - regulation pushes toward greater transparency, while law firms systematically shape how, and how far, that pressure translates into contractual practice.

Chapter 2 applies the same framework to key person provisions, examining heterogeneity across five design dimensions: clause inclusion, number of designated individuals, governance activation threshold, presence of a "super key person" hierarchy, and duration. Variables are organized around strategy depth, fund scale, sponsor positioning, and legal counsel identity. No single driver dominates across all dimensions. Bargaining power explains the all-or-nothing inclusion decision, while signaling logic better accounts for threshold stringency among more focused sponsors. Clause duration, by contrast, is largely determined by legal counsel identity, pointing to the pervasive influence of template-driven drafting even where fund and sponsor characteristics might be expected to govern.
Taken together, the two chapters show that contractual heterogeneity in fund governance provisions is systematic and multi-dimensional. Bargaining power determines whether provisions exist at all; legal intermediaries shape what they contain. When stronger GPs omit provisions entirely and law firms leave a significant imprint on those that are included, the gap between contractual form and investor protection becomes difficult to ignore - and the reliability of private ordering as a substitute for formal regulatory oversight harder to take for granted.