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    May 29, 2025

U.K. Regulators Propose Changes to AIFM Rules to Ease Compliance Burden on Fund Managers

The U.K.’s Financial Conduct Authority (FCA) and His Majesty’s Treasury (HMT) have undertaken far-reaching and overlapping initiatives with a view to improving the U.K.’s private funds regime while simultaneously reforming or abolishing vestiges of the E.U.’s Alternative Investment Fund Managers Directive following Brexit. On April 8, 2025, HMT issued its consultation (Consultation) and the FCA simultaneously released its call for input (Call for Input). The Consultation focuses on the framework of revising regulations and the relative merits of simplifying the current regulatory framework for alternative investment fund managers (AIFMs) and depositaries, while the Call for Input sets out the FCA’s proposed approach to regulating AIFMs within the revised framework. The comment period for both proposals will remain open until June 9, 2025. Some of the proposed changes would be highly welcome by many regulated entities, including reforms to the U.K.’s outdated classification system that assigns funds to regulatory tiers based on their assets under management. Conversely, some legal experts fault the initiatives for failing to incorporate meaningful provisions to address, for example, a liquidity test more in line with E.U. regulatory priorities than U.K. market realities. This article summarizes aspects of the proposed regulatory initiatives most relevant for PE sponsors and presents commentary from lawyers interviewed by the Private Equity Law Report. See “FCA Identifies Regulatory Priorities for Alternative Investment Managers” (Jan. 26, 2023).

Rising Prominence and Role of Equity Commitment Letters in the Co‑Investment Process (Part One of Two)

Co‑investments have become an important component of the private funds industry as they provide fund managers with additional capital to fund larger deals and a means to induce LPs to commit to future commingled funds. For their part, LPs are eager to participate in co‑investments to increase their exposure to private assets, with the added benefit of lowering their dollar cost average via the no-fee, no-carry structure typical of co‑investments. The rise of co‑investments has resulted in a concomitant – or larger – increase in the use of equity commitment letters (ECLs) between sponsors and co‑investors, which introduce certain risks that both parties must consider. This first article in a two-part series explores the growing use of ECLs in the context of co‑investments; their risks and benefits for both parties; and key considerations involved in structuring and signing them. The second article will offer an overview of key terms in ECLs for co‑investments and trends in how parties are negotiating them. See our two-part series on co‑investments: “Key Drivers, Unique Fund Structures and Alternative Approaches” (Aug. 22, 2024); and “Offering Process, Key Fund Terms and Regulatory Considerations” (Sep. 5, 2024).

Inherent Obstacles and Promising Pathways to Retailization in the PE Industry

Retailization in PE and facilitating retail investors’ access to private funds have been topics of discussion for some time, but retail capital remains significantly underrepresented in alternative assets under management. Momentum appears to be building, however, as PE sponsors continue to explore different types of vehicles that afford them access to retail investors. Those efforts are further buttressed by various hints that the current iteration of the SEC supports, and will take measures to facilitate, improved retailization of the private funds industry. Those topics were discussed in a panel at the Practising Law Institute’s Twenty-Sixth Annual Private Equity Forum that was moderated by Paul Weiss partner Matthew B. Goldstein and featured Debevoise & Plimpton partner Vadim Avdeychik, Fried Frank partner Jeremy R. Berry, and Whitney A. Chatterjee, chief legal officer at Apollo Global Management. This article summarizes key takeaways from the program, including the existing landscape of retailization efforts, how fund managers with retail aspirations need to address those issues in their private funds’ documents and the relative merits of various vehicles (e.g., operating companies and interval funds) sponsors are using to access retail investors. See “Legal Due Diligence Considerations for HNWIs and Family Offices Investing in Closed‑End Private Funds” (May 1, 2025).

Continuation Vehicles Survey Highlights Increasing Convergence of Some Terms, Vicissitudes Among Others

As the market for continuation vehicles continues to grow, the interests of investors and sponsors are growing more broadly aligned than in earlier years of the fledging continuation vehicle market. In certain areas (e.g., key person provisions), however, a lack of consensus exists as to what are – or should be – industry best practices. In still other areas, such as the use of internalized rate of return and multiple on invested capital in carried interest waterfalls, the popularity of terms has vacillated year over year. Those points were addressed in Morgan Lewis’ Annual Continuation Vehicles Report: April 2025 (Report), which presents findings from an intensive review of 44 continuation vehicles in North America and Europe. This article summarizes key takeaways from the Report – with additional insights from Morgan Lewis partners – on the nuances of negotiations surrounding management fees, sponsor commitments, carried interest waterfalls, lead investor terms, follow-on investments, allocation of organizational costs and key person event provisions. See our two-part series: “Downward Pressure on Management Fees and Carried Interest Rates Evident Across Asset Classes” (Jan. 9, 2025); and “Movement in Fund Formation and Governance Provisions Driven by Increasing LP Negotiating Power” (Jan. 23, 2025).

Unifying Risk Assessments: Breaking Silos to Enhance Efficiency and Manage Risk

Driven by increasingly sophisticated regulations, ethical and contractual considerations, and customer expectations, among other factors, risk assessment questionnaires have become more complex, with entirely new categories like artificial intelligence assessments. Development professionals have complained about having to complete four or five different reviews before launching their product. Yet, there is rarely a single consolidated view or summary to assess an organization’s overall risk exposure from these various reviews. There is also the harsh reality that silos are everywhere, and efficiency often takes a backseat. In this guest article, Pari Sarnot, a member of the cyber privacy and risk advisory practice at Grant Thornton Advisors LLC, discusses the growing complexity of risk assessments and issues that arise from their siloed completion, and offers practical solutions that lie in unifying the process and using metrics to measure success. The views Sarnot expresses in this article are her own and do not represent those of current or previous employers. See “Improving Compliance Programs With Gap Analysis and Risk Assessments” (Dec. 14, 2023).

Former Chief of SEC’s Asset Management Unit Joins Fried Frank in Washington, D.C.

Fried Frank has welcomed C. Dabney O’Riordan as a partner in its litigation department and asset management practice, based in Washington, D.C. Formerly the Chief of the SEC’s Asset Management Unit, she advises asset managers and public companies on SEC regulatory compliance and represents clients before the SEC and in private disputes. For commentary from O’Riordan, see “SEC Sanctions Investment Adviser and CCO for Compliance Failures That Allowed Misappropriations” (May 15, 2025); as well as our two-part series “Grading Gary Gensler”: Examination Practices, Enforcement Efforts and Industry Guidance (Feb. 6, 2025); and Rulemaking, Culture and Operational Proficiency, and Relationship With Private Funds Industry (Feb. 20, 2025).

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