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Optimizing the Value of a GP Advisory Board for Private Equity Funds

January 8, 2025

Jessica Morgan - Tonkon Torp LLP, and Bill Woodruff - AI Infrastructure Partners

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Launching a private equity fund is an exciting yet daunting endeavor; and a General Partner (GP) Advisory Board can be a critical asset in navigating the complexities. Thoughtfully designing and engaging a GP Advisory Board strengthens a private equity firm’s capabilities by adding external expertise to the firm’s internal resources. 

It’s an investment that pays dividends. 

A GP Advisory Board’s primary role is to provide governance, oversight, and industry expertise, but a well-designed board brings numerous additional benefits, such as:  

• Strategic guidance: Board members can help identify growth opportunities, refine strategic direction, and implement best practices.
• Credibility: Advisory board members lend credibility to the fund and help reassure investors
• Operational guidance: Members with extensive operational experience can help improve efficiency and drive growth
• Risk mitigation/governance: Board members offer an independent viewpoint that can be a valuable contribution at many levels of the risk mitigation/governance spectrum

To build a board that delivers substantial value, here are some key factors to consider when interviewing candidates.

• Do they understand the challenges of the specific industry?  
• Are they critical thinkers who will ask hard questions?  
• Are they dedicated, with enough time to participate, and do they share the fund’s vision? 
• Do they have deep industry knowledge and a proven record of success?  

Three Key Challenges 

1. Indemnification: Indemnification protects GP Advisory Board members from personal liability arising from their advisory role. For first-time fund managers, ensuring proper indemnification is vital to attract high-caliber advisors who can guide the fund without fear of legal repercussions and who feel free to provide candid feedback. 

Best practices: 

• Include clear indemnification clauses in advisory agreements
• Secure directors and officers (D&O) insurance to provide additional protection
• Clearly communicate the scope of indemnification to both board members and investors

By addressing indemnification proactively, you build a foundation of trust and professionalism that supports the board’s effectiveness. 

2. Conflicts of Interest: Conflicts of interest are an inherent risk in private equity, especially as advisors often serve multiple roles across the investment ecosystem. Some common conflicts include involvement with competing funds or portfolio companies, or disputes over prioritization of investment opportunities. A well-structured GP Advisory Board can help mitigate these risks by promoting transparency and serving as a neutral arbiter. 

Best practices:

• Maintain a robust conflict-of-interest policy requiring full disclosure of board members’ affiliations 
• Establish clear protocols for escalating disputes
• Regularly review and update policies to adapt to evolving circumstances

With the board’s guidance, general partners can navigate conflicts while maintaining investor confidence and protecting the fund’s reputation. 

3. Investment Strategy: A GP Advisory Board can be a powerful resource for sharpening and executing a fund’s investment strategy. Members bring a wealth of experience, industry connections, and fresh perspectives to the table, challenging assumptions and refining decision-making processes. 

For example, board members can help identify emerging trends and provide input on portfolio construction. And a third-party viewpoint can help ensure that the fund stays disciplined. In addition, board members often provide critical resources, such as specific expertise, to both potential clients or partnerships. 

Best practices: 

• Conduct periodic reviews of investment ideas with the board
• Incorporate board member feedback into deal evaluation and other aspects of the portfolio
• Leverage board member networks to enhance the quality and quantity of deal flow and to help with portfolio management

Through their active involvement, the advisory board elevates the fund’s strategic execution and overall performance.

Conclusion

A well-structured GP Advisory Board is more than just a formality — it’s a strategic enabler. By providing clarity on indemnification, mitigating conflicts of interest, and enhancing investment strategy, an advisory board becomes a cornerstone of a private equity fund’s success and helps deliver exceptional results for investors.

About Tonkon Torp

Tonkon Torp LLP is a leading business and litigation law firm serving public companies, substantial private enterprises, entrepreneurial businesses, and individuals throughout the Northwest. Tonkon Torp is celebrating its 50th year in business! See our History Timeline for more information, or visit tonkon.com. 

About AI Infrastructure Partners (AIIP)  

AIIP is a private equity firm dedicated to investing in the foundational technologies powering the AI revolution. By focusing on scalable, sustainable, and strategically critical businesses, AIIP delivers transformative value for investors and partners alike. As the digital economy evolves, AIIP is proud to lead in supporting the infrastructure that drives innovation forward. For more information visit aiipartners.ai.