What ILPA’s New Organizational Expense Guidance Means for Emerging Managers

Authored by: Jeff Gendel, Principal, Business Development
Published on: June 8, 2026

The Institutional Limited Partners Association (ILPA) has issued new guidance calling for structural reforms to how private equity funds manage and disclose organizational expenses—the legal, administrative, and compliance costs incurred during fund formation. While the guidance addresses the full spectrum of fund managers, its implications are particularly meaningful for emerging and first-time managers, who already face significant headwinds when establishing institutional credibility with LP investors.

The Three Pillars of ILPA’s Framework

ILPA’s guidance rests on three interconnected recommendations:

• Cap organizational expenses at the lower of 5 basis points of target AUM or $10 million, with side letter and MFN negotiation costs explicitly included within that cap.
• Implement a 50/50 cost-sharing framework for any expenses exceeding the cap, requiring GPs to absorb half of any overage rather than passing all incremental costs to LPs.
• Enhance legal fee transparency by providing LPs with counsel rate schedules and formation budgets, monitoring spend on an ongoing basis, and requiring competitive bidding for fund counsel on funds targeting more than $1 billion in AUM.

The guidance reflects a broader LP sentiment that has been building for several years: as enhanced fund complexity drives increases in legal costs and organizational expense caps have drifted upward (from roughly 20 basis points in 2019–2021 to approximately 25 basis points by 2024–2025, per Albourne Partners), the traditional model of passing all formation costs to LPs has become increasingly difficult to defend.

Why This Matters for Emerging Managers

ILPA explicitly acknowledges that first-time and smaller managers occupy a different position than large, established GPs. The cost barriers to launching a new fund are real, and ILPA’s framework is designed with enough flexibility to reflect that. But the guidance also raises the bar for what institutional LPs will expect to see from day one—regardless of fund size.

For emerging managers, this translates into a few practical realities:

• Expense budgets need to be realistic and defensible from the outset of fundraising, not revised upward as legal complexity grows. LPs will scrutinize how well a manager anticipated and controlled formation costs.
• Side letter and MFN negotiation costs can no longer be quietly carved out as partnership expenses. ILPA’s guidance explicitly calls for these to be captured within the organizational expense cap—a meaningful change for first-time funds where side letter volume can be high relative to fund size.
• Transparency is now a baseline expectation. Institutional LPs increasingly evaluate operational maturity alongside investment strategy. An emerging manager who can provide clear expense disclosure frameworks and governance procedures demonstrates the kind of institutional readiness that builds LP confidence during diligence.
• The 50/50 overage rule is a direct incentive to control costs. For smaller funds where every dollar of organizational expense represents a larger share of total commitments, the cost-sharing model makes disciplined formation planning even more important.

Gen II Fund Services has longstanding roots in the emerging manager community and active involvement with ILPA, including representation on ILPA steering committees. Having worked alongside emerging managers through multiple fundraising environments and evolving LP diligence standards, we follow these developments closely—not just because they shape industry practice, but because managers increasingly need to anticipate the expectations they create.

If you are navigating the fund formation process and would like to discuss how these changes may affect your raise, we are happy to be a resource.