GP consent and transfer restrictions in LP trades

Why GP consent matters

Limited partnership agreements (‘LPAs’) will require LPs to obtain GP consent before transferring their fund interests. Whilst this has always been the case for a mixture of regulatory, commercial, and tax reasons, the GP consent process now has real economic and strategic implications.

Several forces are driving this shift:

• The rise of GP led secondaries has given GPs a direct commercial interest in controlling liquidity events.
• Consolidation of large secondary buyers means GPs are more selective about who they allow into their funds.
• Increased regulatory scrutiny has made GPs more cautious about who holds economic exposure.
• The growth of continuation funds has made GPs more sensitive to LP turnover and alignment.

How transfer restrictions are tightening

LPAs are evolving in ways that give GPs more discretion over transfers. Common trends include:

1. Broader “no transfer” definitions

LPAs increasingly define “transfer” to include economic transfers, derivative based exposure, pledges or collateral arrangements, and synthetic structures, and to include broad terminology such as “direct or indirect” arrangements. This can even extend to provisions expressly capturing changes in beneficial ownership of an LP, perhaps where that might give rise to a change in the regulatory or tax profile of that LP. This gives GPs the ability to block not just legal transfers, but also creative workarounds and LP restructuring.

2. Expanded “reasonable discretion” clauses

GPs have wide discretion to deny transfers based on confidentiality concerns, competitive conflicts, “reputational risk”, and administrative burden. These subjective standards give GPs significant control. Often, there are no reasonableness parameters at all and so consent is entirely at the discretion of the GP.

3. More detailed buyer qualification requirements

Some LPAs now require buyers to meet specific regulatory thresholds, agree to additional reporting obligations, sign updated side letter terms, and demonstrate long term alignment. This can lead to longer approval and onboarding timelines and slow transfers.

Why GPs are exercising more control

GPs have several motivations for tightening transfer and consent provisions, both practical and strategic:

1. Protecting fund stability

Frequent LP turnover can create administrative complexity, confidentiality risk, or disruption to governance. GPs want predictable, aligned investor bases.

Some GPs view transactions that are priced at a material discount to NAV as potentially destabilising for the fund and challenging from an investor relations perspective. As a result, they increasingly require pricing disclosure – not only for tax or regulatory purposes, but also to manage these broader considerations. In such cases, GPs may be reluctant to grant consent to transfers that could unsettle the investor base, particularly where a right of first refusal (‘ROFR’) or similar notice mechanism would oblige them to communicate the discounted pricing to other LPs.

2. Managing competitive dynamics

Large secondary buyers often have stakes across multiple funds, deep visibility into GP portfolios, and influence in continuation processes. GPs may prefer to limit exposure to certain buyers, particular those with an activist reputation or who are competitors of the GP.

Increasingly, GPs are seeking to control the competitive dynamics among buyers – and potentially take advantage of attractive pricing – by using the GP’s ROFR or general discretion to withhold consent in order to force a sale of all or a portion of the fund interest to a preferred buyer. The preferred buyer could be another existing investor or an affiliate of the GP.

3. Steering liquidity toward GP led solutions

GP led transactions generate fee income, control over timing of exit, and influence over buyer selection. Allowing too much LP to LP trading might dilute this.

In some transactions, GPs signal that consent may be more readily granted where the buyer is willing to commit fresh capital to a new fund, co investment, or continuation vehicle. While staples are not always explicit conditions, they can operate as a soft expectation that aligns transfer approvals with the GP’s fundraising objectives. This trend reinforces the commercial dimension of GP consent and raises questions for LPs about equal treatment, transparency, and whether consent decisions are being influenced by factors beyond the suitability of the incoming investor.

4. Regulatory and compliance concerns

Sanctions, AML rules, tax restrictions (including ‘PTP’ issues) and cross border regulations all contribute to making GPs more cautious about approving transfers. In light of recent geopolitical uncertainties, GPs may also be concerned if the buyer is domiciled in certain jurisdictions or otherwise linked to state owned entities, as a material change in the investor base could subject the fund’s investments to more onerous foreign direct investment review.

The impact on LPs, buyers, and GPs

For LPs, the tightening of transfer restrictions means that liquidity has become less predictable than it was. What used to be a relatively straightforward process can now stretch over much longer timelines, with GP imposed delays directly influencing both the speed and the economics of a sale. These uncertainties can affect pricing, particularly when LPs are under time pressure or facing market volatility. As a result, some LPs are increasingly exploring, within the bounds of LPA transfer restrictions, synthetic liquidity solutions (i.e., structures that replicate the economics of a sale without triggering formal transfer provisions) as a way to bypass the consent bottleneck.

For buyers, a review of transfer provisions is essential to mitigate against any approval risks. At the same time, relationships with GPs carry lots of weight – buyers who are known to be constructive, transparent, and aligned with GP priorities often find themselves at a competitive advantage.

For GPs, the expansion of consent rights brings both opportunity and responsibility. Greater control over who enters the fund can help preserve alignment, protect sensitive information, and maintain the stability of the investor base. However, overly restrictive or opaque practices can frustrate LPs and create friction in the relationship. The most effective GPs are those who exercise their consent rights thoughtfully, by balancing the need for control with a recognition that predictable, well managed liquidity ultimately supports the long term health of the fund.

The outlook

GP consent is likely to continue to expand in scope and importance. Several developments are likely:

1. More explicit language in fund documents

Future LPAs and side letters may include detailed buyer eligibility criteria, pre approved transfer lists, and explicit carve outs for synthetic trades.

2. Standardised consent processes

As secondaries scale, more GPs may create dedicated transfer teams or digital consent platforms.

3. Increased negotiation around transfer rights

Large LPs may push back by negotiating stronger transfer rights, seeking MFN protection for transfer terms and demanding clearer timelines.

4. Greater use of structured liquidity

If GP consent becomes too restrictive, LPs and buyers will increasingly turn to other solutions such as preferred equity, NAV loans, total return swaps, and strip sales. These structures replicate liquidity without triggering transfer provisions.

The growing weight of GP consent signals a shift in the strategic priorities of GPs. As GPs consolidate control over who enters their funds and how capital moves, LPs and secondary buyers must adapt to a landscape where the LPA fine print is as important as financial analysis.

Authored by Leanne Moezi, Thomas Kim, Amelia Stawpert, and Michael Rogers.