How ILPA’s Model NDA Could Change Preliminary Due Diligence Practices

Investors are typically required to execute non-disclosure agreements (NDAs) before obtaining information to perform due diligence of fund managers. Although the obligation to keep information confidential is relatively straightforward, each manager has a different NDA for investors to review. That forces investors either to accept each NDA without considering its terms or to negotiate each one separately. If investors choose to negotiate, then they will incur costs and delay access to manager information without any certainty about whether they will even invest with that manager. Unfortunately, managers face many of the same cost and time considerations as well. To remedy those fundraising impediments and streamline the NDA process, the Institutional Limited Partners Association (ILPA) released a new model NDA (Model NDA) in January 2021. The Model NDA’s terms are largely uncontroversial, and there is clearly an appetite for such a document – it was downloaded 400 times on its first day of release. To better understand ILPA’s objectives and the Model NDA itself, the Hedge Fund Law Report interviewed representatives from ILPA, investor counsel and fund manager counsel. This article analyzes the rationale for the Model NDA, its key features, its interplay with click-through confidentiality agreements and its potential impact on the private funds industry. For more on NDAs, see our three-part series “Key Legal and Business Considerations for Hedge Fund Managers in Drafting and Negotiating Confidentiality Agreements”: Part One (Apr. 12, 2012); Part Two (Apr. 26, 2012); and Part Three (Jul 19, 2012).

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