Designing a Fund Governance Framework: Legal Best Practices for Institutional-Grade Fund Management

May 23

As private funds scale in size and complexity, establishing a robust governance framework becomes a strategic imperative. A well-designed fund governance framework aligns fiduciary duties with operational integrity, improves transparency, and meets the expectations of Limited Partners (LPs), regulators, and auditors.

This article outlines how fund managers—from first-time general partners to seasoned private equity and venture capital firms—can build and implement effective governance structures to support long-term growth and compliance.

What Is a Fund Governance Framework?

A fund governance framework is the set of legal, operational, and oversight mechanisms that guide how a private investment fund is managed. It defines the roles, responsibilities, and decision-making authority of all stakeholders, including:

General Partner (GP)
Management company
Investment committee
LP Advisory Committee (LPAC)

Why Governance Matters for Fund Managers

Enhances Investor Confidence: Institutional LPs demand clear governance protocols
Reduces Legal and Regulatory Risk: Prevents governance failures that lead to enforcement or litigation
Improves Operational Clarity: Establishes processes for approving investments, managing conflicts, and distributing profits
Supports ESG, DEI, and Compliance Objectives: Provides structure for reporting and oversight

Core Components of a Fund Governance Framework

1. Organizational Documents and Role Definitions

Limited Partnership Agreement (LPA): Primary governance document defining authority, fees, and rights
Management Company Agreement: Outlines the duties of the fund manager
Investment Committee Charter: Clarifies who approves or rejects investments and monitors strategy
LPAC Charter: Defines conflict resolution protocols, valuation oversight, and fund term extensions

2. Decision-Making Protocols and Escalation Procedures

Require formal votes for material transactions or amendments
Establish quorum and consent thresholds for GPs, LPAC, and committee members
Document decisions with written resolutions and audit trails

3. Conflict of Interest Policies

Manage cross-fund transactions and co-investment allocations
Disclose all affiliate relationships and related-party dealings
Create internal conflict logs monitored by legal or compliance officers

Internal Link: Using Side Letters Strategically: Legal Best Practices

4. Compliance, Risk Management, and Audit Functions

Appoint a Chief Compliance Officer (CCO) or external compliance provider
Create a compliance calendar for SEC filings, LP notices, and annual reviews
Establish whistleblower and incident response procedures

5. Transparency and Reporting Protocols

Deliver quarterly and annual reports aligned with ILPA or investor standards
Disclose material side letter terms, fee offsets, and clawback provisions
Adopt best-in-class reporting systems to maintain audit-ready records

Technology and Tools for Governance

Use platforms like Allvue, Juniper Square, or Carta to manage workflows
Centralize fund documentation, resolutions, and LP communications
Automate compliance tracking and regulatory alerts

Governance Trends Fund Managers Should Monitor

SEC Fund Governance Rulemaking: Increased emphasis on oversight, valuation transparency, and fiduciary controls
ESG and DEI Integration: LPs are pushing for structured governance frameworks that incorporate ESG metrics and diversity initiatives
Cybersecurity Governance: Incident preparedness is now a core part of governance policies

Avoiding Common Governance Pitfalls

Vague or outdated LPA governance language
Undocumented or informal investment approvals
Overlapping authority between fund entities
Lack of role clarity among GP, IC, and LPAC

Institutionalize Your Governance for Long-Term Success

Designing a strong fund governance framework is no longer optional—it is essential for attracting institutional capital, passing regulatory scrutiny, and operating with integrity. Fund managers must tailor their governance models to their investment strategy, LP base, and jurisdictional obligations.

For legal assistance drafting fund governance frameworks, investment committee charters, and LPAC procedures, contact our fund advisory team at 786.461.1617 to schedule a consultation and fortify your governance infrastructure.

Liz Komatsu