No-fault removal
A right for a supermajority of LPs to remove the GP or end the fund without proving wrongdoing.
The threshold is usually high, often three quarters of commitments. It gives LPs an exit if the relationship breaks down even when nothing illegal has happened.
Thresholds commonly range from two thirds to 75 percent or more of LP commitments, sometimes excluding commitments held by GP affiliates. Many LPAs prevent removal in the first year or two of the fund.
The consequences for the removed GP are negotiated: whether it keeps some carry on investments already made, whether its own commitment converts to a passive LP interest, and how management fees stop. Removal for cause, after fraud or a serious breach, carries harsher consequences and a lower voting threshold.
Worked example
A $100M fund's LPA allows no-fault removal by LPs holding 75 percent of commitments, but not in the first 18 months. If LPs vote to remove the GP in year three, it keeps 80 percent of the carry it would have earned on existing investments and its management fee stops after 90 days.
Common questions about no-fault removal
What is the difference between removal for cause and no-fault removal?
Removal for cause follows misconduct such as fraud or a material breach and usually needs a lower vote. No-fault removal needs no wrongdoing but requires a high supermajority of LPs.
Do first-time funds need a no-fault removal clause?
Most institutional LPs expect one, and leaving it out can cost commitments. GPs can negotiate the threshold, timing and the economic consequences instead.