Sep. 21, 2021

Negotiating Co‑Investments: Unique Features and Considerations in Co‑Investment Vehicle Documents (Part Two of Two)

When a PE sponsor chooses to offer a co‑investment program, negotiations of the fund documents for the co‑investment vehicle are typically not contentious because they are usually based on the main PE fund’s documents. It remains valuable, nonetheless, for the GP to be aware of current market standards as to certain bespoke provisions LPs expect to see in the limited partnership agreement (LPA) and side letters for its co‑investment vehicle. This second article in a two-part series discusses documenting the co‑investment vehicle, including fees, expenses and LP rights typically set out in the fund agreement and what items are usually included in co‑investor side letters. The first article addressed co‑investment-related provisions in a main PE fund’s LPA and side letters, including several that can provide flexibility to GPs in the timing and allocation of co‑investment opportunities. See our two-part series on co‑investments: “Structures That Give GPs More Control and Discretion” (Apr. 21, 2020); and “Direct and Indirect Structures That Empower LPs” (Apr. 28, 2020).

Derivative Lawsuit Challenges SPAC Model and Causes Pershing Square to Pivot to New “SPARC” Vehicle

Special purpose acquisition companies (SPACs) were all the rage in 2020, but their popularity has waned in 2021 as a result of various factors, including increased SEC scrutiny. The SPAC model is being further challenged by a derivative lawsuit (Complaint) brought against William A. Ackman’s SPAC – Pershing Square Tontine Holdings, Ltd (PSTH) – alleging that it qualifies as an investment company under the Investment Company Act of 1940 and has breached various provisions thereof. In addition, the Complaint claims that PSTH’s investment adviser – Pershing Square Capital Management, LP – has breached the Investment Advisers Act of 1940. The lawsuit seeks to reframe fundamental features of a typical SPAC structure and, if successful, would significantly affect the SPAC market. Whatever the outcome of the lawsuit, Ackman has already signaled that a new special purpose acquisition rights company (SPARC) is in the works to address the Complaint’s concerns and provide an innovative path for PSTH’s current shareholders to realize long-term value if they choose to participate in the new vehicle. This article summarizes the Complaint, analyzes the potential viability of SPARCs and provides commentary from legal experts about the issues most relevant to PE sponsors. For additional coverage of recent developments in SPACs, see our two-part series: “SEC Scrutiny, Alignment Share Structures and Other Trends in SPAC IPOs and De‑SPAC Transactions” (May 25, 2021); and “Factors for Structuring De‑SPAC Transactions and Negotiating Points When Selling to a SPAC” (Jun. 1, 2021).

Advertising Compliance Series: Ten Best Practices for a Fund Manager to Streamline Its Compliance Review (Part One of Two)

Few tasks create more headaches for compliance officers than reviewing and approving marketing materials. As capital raising has grown more challenging, compliance officers have become inundated with requests from in-house marketers to review new or modified presentations designed to retain existing investors and secure new allocations. Due to the deliberate nature of a compliance officer’s review of marketing materials, compliance is often characterized as a perennial bottleneck, yet the review of advertisements by knowledgeable compliance professionals is critical to minimizing regulatory and litigation risk to the adviser. This two-part series is dedicated to assisting managers with developing and enhancing their advertising compliance policies and practices. This first article outlines what documents fall within the advertisement definition and outlines ten best practices that managers should consider implementing when designing or evaluating their advertising review procedures. The second article will explore six different testing mechanisms firms can employ to verify compliance with their advertising procedures. See our three-part series on operational deficiencies in non-standard performance calculations: “Common Process Issues” (Feb. 9, 2021): “Common Recordkeeping and Disclosure Issues” (Feb. 16, 2021); and “Nuts and Bolts of Upgrading Controls” (Feb. 23, 2021).

Key Features of CFA Institute’s New ESG Disclosure Standards

Environmental, social and governance (ESG) funds and products have become increasingly prevalent as ESG issues remain in the spotlight and demand for ESG investments continues to snowball. The lack of standardized terms, definitions and disclosure requirements, however, makes it more challenging for investors to understand exactly how “green” potential investments may be and to compare different ESG products with one another. CFA Institute has developed a set of ESG disclosure standards (ESG Disclosure Standards) that it hopes will meet the need for a widely accepted global framework and potentially become as successful as its Global Investment Performance Standards. Confluence and ACA Group recently hosted a webinar to discuss the new ESG Disclosure Standards; how they are different from other regulations and frameworks; and their potential relevance to asset managers. The program was hosted by Chris Smith‑Hill, product manager for product design and reporting at Confluence, and featured Crista DesRochers, partner at ACA Group (ACA); Camilla Bossi, business development manager at Confluence; and Carl Bacon, chief adviser at Confluence. Bacon is also the chair of CFA Institute’s Global Industry Standards Committee. This article reviews the key insights and relevant takeaways from the discussion. For coverage of previous ACA programs, see our two-part series on the sponsor-led secondary market: “Themes, Issues and Solutions” (Oct. 8, 2019); and “Keys to Success, Process and Compliance” (Oct. 15, 2019).

The SEC’s 2021 Reg Flex Agendas: Key Components and Driving Factors (Part One of Two)

Federal agencies such as the SEC are required to publish agendas of the regulations that are under development or review. To satisfy that requirement, the SEC typically releases short-term and long-term “Reg Flex” agendas. The items included on those agendas – and those left off – provide insight into the agency’s priorities for the foreseeable future. The first Reg Flex agendas issued under Chair Gary Gensler were recently published and reflect many of the priority areas that he has already identified in speeches, testimony before Congress and elsewhere. This first article in a two-part series covers the relevant components of the latest Reg Flex agendas and the key factors driving the items on those agendas. The second article will highlight proposed amendments to Form PF in the agenda and the rulemaking process in general, including criticism by Commissioners Hester M. Peirce and Elad L. Roisman of Gensler’s apparent plans to reopen recently completed rules. For our coverage of prior Reg Flex agendas, see “Former OCIE Official Discusses SEC’s Latest Reg Flex Agendas” (Dec. 8, 2020); “Key Takeaways for Private Fund Managers From SEC’s Latest Reg Flex Agenda” (Oct. 1, 2019); and “SEC’s Reg Flex Agenda Promotes Transparency While Adding Potential Compliance Burdens” (Mar. 15, 2018).

Akin Gump Welcomes Investment Funds Lawyer Terence Rozier‑Byrd

Terence Rozier‑Byrd has joined Akin Gump as a partner in its investment management group. His practice focuses on institutional investor representation; fund formation, with a focus on growth equity and PE funds; and secondaries. He has broad experience representing a wide range of clients, including a variety of institutional investors, emerging managers and more established managers. See “Emerging Managers Need Appropriate Infrastructure – Not Only Solid Performance – To Attract Investors” (Feb. 25, 2020).