Catherine,
I hope this note finds you well. The team is pleased to circulate the initial draft of the Agreement of Limited Partnership for Harrowgate Private Equity Fund V LP, a Delaware limited partnership. The draft is attached as **lpa-fund-v-initial-draft.docx** (Matter No. 1003-00002).
This draft was prepared with input from Graham Sutherland and Sylvia Hartwell (on the tax-related provisions) and reflects the terms discussed during the engagement kickoff and our subsequent calls with you, Jonathan, and Rachel. As you'll recall, Theresa Kim circulated the initial draft PPM on May 1, and this LPA draft is designed to be consistent with the term summary set forth in the PPM.
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**I. Summary of Key Economic and Structural Terms**
For ease of reference, I wanted to briefly confirm the principal terms reflected in the draft. This is not an exhaustive list, but it captures the key economics and structural points we discussed:
- **Fund Structure:** HPE Fund V LP as Main Fund; Harrowgate Fund V GP LLC (a Delaware LLC, sole member: Harrowgate Capital Partners LLC) as General Partner. - **Target Fund Size / Hard Cap:** $2,000,000,000. - **Minimum First Close:** $750,000,000. - **GP Commitment:** 2.5% of aggregate commitments (i.e., $50,000,000 at hard cap). - **Management Fee:** 1.75% per annum on committed capital during the Investment Period; 1.50% per annum on invested capital (net of realized dispositions) post-Investment Period. - **Carried Interest:** 20% of net profits above an 8% preferred return (compounded annually), with a European-style (whole-fund) waterfall. - **GP Catch-Up:** 80/20 split until the GP has received 20% of cumulative net profits. - **Clawback:** GP clawback obligation, net of taxes actually paid, guaranteed severally (not jointly) by Marcus Harrowgate, Diana Castellano, and Jonathan Birch, in proportion to their respective carried interest allocations. - **Investment Period:** 5 years from Final Close. - **Fund Term:** 10 years from Final Close, plus two 1-year GP extensions and one additional 1-year extension with LPAC approval. - **Concentration Limit:** No single portfolio investment to exceed 20% of aggregate commitments at the time of commitment. - **Fund-Level Leverage:** Subscription facility borrowings capped at 25% of uncalled commitments; bridge financing limited to 180 days. - **Transaction Fee Offset:** 100% of net transaction, monitoring, and break-up fees offset against management fee. - **Minimum LP Commitment:** $10,000,000 (subject to GP waiver). - **ERISA:** Benefit plan investors limited to less than 25% of each class of equity interests. - **Offering Exemption:** Section 3(c)(7) of the Investment Company Act (qualified purchasers); Regulation D, Rule 506(b). - **Governing Law:** State of Delaware. - **Dispute Resolution:** Exclusive jurisdiction in the Delaware Court of Chancery (or, if no subject matter jurisdiction, the Superior Court of Delaware, New Castle County). - **Fiscal Year:** Calendar year.
Please let us know if anything in the above summary does not align with your expectations, and we will address it promptly.
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**II. Key Open Issues for Client Discussion**
There are several provisions in the draft that the team has flagged for discussion before the LPA is distributed to prospective LPs. I would appreciate the opportunity to schedule a call with you and the Harrowgate team to work through the following items:
1. **Key Person Provisions** - The draft designates Marcus J. Harrowgate and Diana R. Castellano as Key Persons. A Key Person Event is triggered if either ceases to devote substantially all professional time to the Fund, with the consequence being suspension of the Investment Period unless cured or waived by a majority-in-interest of the LPs. - The draft currently includes a placeholder for the cure period ([__] days). Could you confirm your preferred duration? Market practice for funds of this size typically ranges from 90 to 180 days. We would also welcome your thoughts on whether you'd like to include a mechanism for designating a replacement Key Person with LP consent as an alternative to cure.
2. **No-Fault Removal Threshold** - The draft provides that 75% in interest of LPs (excluding GP-affiliated commitments) may remove the GP without cause, consistent with the term sheet. However, we flag that some institutional LPs — particularly pension systems — may push for a lower threshold (e.g., 66⅔%). Is 75% the firm position, or is there flexibility? This is worth considering in light of anticipated negotiations with Aldworth & McBride LLP on behalf of Northmoor State Pension System.
3. **LPAC Consent Rights** - The draft establishes a 5-member LPAC, with 3 seats to be designated at First Close. We anticipate the initial LPAC members will be Northmoor State Pension System (Helen T. Barrows), Edgecombe Insurance Group Ltd. (Alastair G. Dunmore), and The Kingsbridge Endowment Fund (Dr. Philip W. Sheng). - LPAC consent rights in the draft currently cover: (i) conflict-of-interest transactions; (ii) valuation of hard-to-value assets; (iii) Fund term extensions beyond the two GP discretionary extensions; and (iv) waivers of investment restrictions (including concentration limits). - Some LPs may request that LPAC approval also be required for co-investment allocation methodology and related-party transactions. Would you like to include those in the draft, or do you prefer to reserve those decisions to the GP?
4. **Management Fee Step-Down Mechanics** - The draft provides for the step-down from 1.75% to 1.50% at the end of the Investment Period, calculated on invested capital net of realized dispositions. We would appreciate confirmation on the precise definition of "invested capital" for step-down calculation purposes — specifically, whether unrealized write-downs reduce the base or only realized dispositions. This is a frequent point of LP negotiation, and it's helpful to have the Sponsor's position established before distribution. - Separately, we note that the Early Close discount (10 bps, reducing to 1.65%) and the Large LP discount (additional 5 bps for commitments of $150M or more, yielding 1.60%) will be implemented via side letters rather than in the LPA itself. Please confirm this approach works for you.
5. **Organizational Expenses Cap** - The draft caps organizational expenses at $3,500,000, with any excess borne by the Sponsor (Harrowgate Capital Partners LLC). This includes formation costs, filing fees, legal fees for formation documents, accounting setup, and regulatory filings. - Given the number of vehicles being formed — Main Fund, Parallel Fund, Offshore Feeder, blocker, and GP entity — and the associated legal, accounting, and filing costs (including Cayman CIMA registration for the Offshore Feeder, which can be meaningful), could you confirm that the $3,500,000 figure remains appropriate?
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**III. Cross-References to Parallel Vehicles**
The Main Fund LPA will serve as the "master" agreement. The Parallel Fund LPA and Offshore Feeder LPA will cross-reference the Main Fund LPA for economic terms, investment restrictions, and governance. Drafts of those agreements are being prepared in parallel and will be circulated for your review once the Main Fund LPA terms are settled.
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**IV. MFN Provisions**
The draft includes a Most Favored Nation process: side letter terms will be disclosed to all LPs committing $50,000,000 or more, with a 30-day election period after Final Close. This is standard for a fund of this size, but we ask that you confirm this approach.
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**V. Timeline and Next Steps**
As discussed, our target is to distribute the LPA and finalized PPM to prospective LPs by **June 2, 2025**. To hit that date, I would like to schedule a working call early the week of May 12 to discuss the open issues identified above. I would suggest the call include you, Jonathan, and Rachel on the Harrowgate side, and Graham and me from Calderwood & Harkness (we can include Sylvia Hartwell if any tax-related provisions need discussion).
Once we resolve the open items, we will prepare a revised draft and coordinate with Theresa Kim on conforming revisions to the PPM. As a reminder, the First Close target remains **August 15, 2025**, and we expect that Aldworth & McBride (counsel to Northmoor Pension) and other LP counsel will have comments once the LPA is distributed, so building in adequate review time on our end is important.
Finally, I note that side letter negotiations can commence in parallel once the LPA is distributed. The form side letter template is substantially complete, and we will circulate it shortly.
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Please don't hesitate to reach out with any preliminary questions by email or phone before the call. I am available at the number below, and Graham is also available if needed.
Best regards,
**Stephen Adler** Associate Calderwood & Harkness LLP 400 South Ashbury Asset Advisors, Suite 3000 Wilmington, DE 19801 Direct: (302) 555-8214 Email: sadler@calderwoodharkness.com Matter No. 1003-00002
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