Investment management agreement, also known as an investment advisory agreement, is a contract between an investment advisor and a client. It outlines the terms and conditions of the investment services provided by the advisor. It covers topics such as investment goals, investment strategies, fees, and the authority given to the advisor to manage the client`s investments.
Private equity is a type of investment in which capital is invested in non-publicly traded companies or assets that are not listed on a public exchange. Private equity companies typically invest in start-ups or established companies seeking growth capital or restructuring.
Investment management agreements in private equity can be complex. They require careful drafting to ensure that the interests of both the investment advisor and the client are protected. Here is a breakdown of key elements to consider when drafting a private equity investment management agreement:
Investment objectives and goals
The agreement should specify the investment objectives and goals of the client. The investment objectives should be realistic and achievable, taking into account the client`s risk tolerance and investment horizon.
The agreement should outline the investment strategy that the advisor will use to achieve the client`s investment goals. For private equity investments, the advisor may use a variety of strategies, including leveraged buyouts, growth capital, and distressed debt investing.
The investment management agreement should outline the fees and expenses associated with the advisor`s services. Private equity investments typically involve higher fees than traditional investments due to the complexity of the investments.
The agreement should specify the authority given to the advisor to manage the client`s investments. In private equity investments, the advisor may have considerable discretion to make investment decisions on behalf of the client.
Conflicts of interest
The agreement should address potential conflicts of interest that may arise between the investment advisor and the client. For example, the advisor may have other clients with similar investment objectives, which could create conflicts in investment decisions.
The agreement should include provisions for termination of the agreement, including circumstances under which the agreement may be terminated by either party.
In conclusion, private equity investment management agreements require careful drafting to ensure that both the advisor and the client are protected. It is important to clearly outline the investment objectives, investment strategy, fees, authority, potential conflicts of interest, and termination provisions. By addressing these key elements, investment advisors and clients can work together to achieve their investment goals.