Here are some key quotes from my podcast with Ed Klees, partner at the Hirschler law firm, discussing investment agreements from the allocators’ perspective:

“For allocators, the costs are much more constrained. They really can’t afford to pay a lot of money for fund negotiations, number one. Number two, of course, the GP’s council does get reimbursed from the fund. So the GP doesn’t necessarily bear the same measure of expense.”

“If the manager is in very high demand, then a client might be less inclined to ask for very much in the way of changes. And on the other hand, if they’re a cornerstone investor, or the manager otherwise wants to have them in the fund very much, then the negotiation becomes a little bit more balanced.”

“Not only is it pretty easy to predict hedge fund terms, it’s also the case that no matter how large or how big a track record, a manager’s hedge fund terms will be very similar to each other, regardless of those criteria.”

“You know, the business team as the client is looking at the economics. I don’t want to exaggerate, but that is a huge issue. It towers over the other issues from their perspective, at least initially when they’re first looking at a fund.”

“But transparency, early redemption, early notifications, that makes allocators nervous because if you know there’s a bump in the road and other people have the ability to get out before you do that doesn’t make people feel very comfortable.”

“A lot of these allocators are themselves fiduciaries – universities, foundations, public pension plans, private pension plans, OCIOs, family office management teams – all have fiduciary duties. And it’s a little bit hard to swallow as a practical matter, to think that I have a fiduciary duty when I make an investment decision for my university for my family office, but I’m hiring somebody who doesn’t have any.”

“This is like getting engaged and getting married, that you have an engagement period when you’re doing your due diligence, you’re negotiating the contract, and then hopefully, you have a very happy marriage and you live happily ever after.”

“Off market doesn’t necessarily mean unfair. And so I’m all about fairness. And so I’d like to see terms that are fair, even if maybe people haven’t thought about them before.”

“I’ve heard from several different, very thoughtful clients about how they can’t visit funds in person right now [for operational due diligence]. And they can’t really speak to everybody they want to speak to. If you’re in the building, not only do you meet the portfolio managers, you meet the head of AML, you meet everybody you want to meet. It really is important to the process.”