Nov. 24, 2020

Five Essential Articles for Global Private Fund Managers From the PELR in 2020

In light of the Thanksgiving holiday in the U.S., this issue of the Private Equity Law Report features five articles from 2020 addressing legal issues relevant to global private fund managers. Next week (the week starting November 30, 2020), the PELR will resume regular publication – that is, publication of new content focused on regulatory and related considerations applicable to private fund managers in the U.S., the U.K. and other jurisdictions.

Emerging From Abraaj’s Shadow: Current Status of Litigation and How Sponsors, LPs, Regulators and the Entire PE Industry Are Adapting to the Aftermath

The Abraaj Group, once the largest PE firm in the Middle East with $13 billion in assets under management, collapsed in 2018 after the Dubai Financial Services Authority discovered extensive fraudulent practices that resulted in the issuance of a $315‑million fine in July 2019. More than a year after that penalty, the scandal continues to cast a pall over PE in the region, and outside investors remain skeptical of local fund managers and M&A opportunities. There remains hope, however, that changes adopted by sponsors and the industry at large – both culturally and legally – will help them thrive in the coming years. To understand the lingering fallout of the Abraaj Group’s downfall, the Private Equity Law Report interviewed various attorneys, investors, managers and investors operating in the Middle East. The first article in a two-part series details the reactions of regulators and LPs in the Middle East, and it provides an update on the criminal and enforcement actions taken against the Abraaj Group and certain of its key executives. The second article outlines steps GPs in the region have taken to adapt to a tougher fundraising environment and uncertain future. See “Key Factors When Deciding Between Offshore Domiciles for Establishing Shari’a-Compliant PE Funds” (Feb. 18, 2020); and “The Collapse of Abraaj: Resolved and Pending Cases in the U.S. and Dubai Against the Former PE Giant” (Oct. 22, 2019).

Preparing for the E.U.’s New Regulations for Disclosing Sustainability Risks and Negative Impacts From ESG Investing

Environmental, social and governance (ESG) investing, along with variants thereof, has been measurably growing in the private funds industry in recent years, driven by substantial demand from institutional investors. Insufficient disclosure to investors remains an issue, however, particularly regarding the integration of sustainability risks related to ESG investing and how adverse sustainability impacts inform investment decision-making and advisory processes. Working from that premise, the E.U. published a regulation (Regulation) on December 9, 2019, that goes into effect on March 10, 2021, with some product rules to be implemented by December 30, 2022. In a guest article, Arendt & Medernach partners Isabelle Lebbe and Stéphane Badey analyze the disclosure requirements introduced by the Regulation, identify its likely effect on PE sponsors, provide guidance to fund managers on how to successfully comply with its requirements and describe certain unresolved issues practitioners need to grapple with in the long term. See our two-part series on ESG factors in fund investing: “Past, Present and Future” (Nov. 10, 2016); and “Designing an ESG Investing Policy” (Nov. 17, 2016).

Distribution, Fundraising and Regulatory Environment in Luxembourg and the E.U.

A seminar presented by the Association of the Luxembourg Fund Industry (ALFI) offered a snapshot of the current state of the funds space in Luxembourg and addressed key business and regulatory developments that may affect E.U. fund managers. As with prior ALFI events, the program featured panel discussions with representatives from financial services, asset management, legal and accounting firms. This article covers the portions of the seminar that discussed distribution and fundraising in the E.U.; pre-marketing rules and potential revisions to the Alternative Investment Fund Managers Directive; anti-money laundering and know your customer issues; PE and real assets funds; and evolving anti-tax avoidance measures. For additional coverage of an ALFI event, see our two-part series: “Luxembourg Positions Itself As a Calm in the Brexit Storm” (Jan. 10, 2019); and “How Luxembourg Is Affected by Regulatory Developments and the E.U. Retail Distribution Environment” (Jan. 31, 2019).

Not Just GDPR: Examining the Other European Privacy Laws

With all the time and energy spent focusing on the E.U.’s General Data Protection Regulation (GDPR) and the rest of its privacy regime, fund managers may lose track of the privacy laws of other European countries. Most nations in Europe outside of the European Economic Area (EEA) have their own privacy regimes, however, not all of which align neatly with the GDPR. This article outlines analysis of the non‑EEA privacy law landscape presented at a recent PLI program by Miriam H. Wugmeister and Marian A. Waldmann Agarwal, partner and counsel, respectively, at Morrison & Foerster. See “How the GDPR Will Affect Private Funds’ Use of Alternative Data” (Jun. 14, 2018); and our two-part series on the GDPR: “Impact” (Feb. 21, 2019); and “Compliance” (Feb. 28, 2019).

How Sponsors Can Benefit From Fund Launches Under Hong Kong’s Proposed Limited Partnership Regime

Hong Kong recently enacted the Limited Partnership Fund Ordinance (Cap. 637) (Ordinance) to establish a regime for limited partnership funds (LPFs). The Ordinance is one of the government’s initiatives to promote Hong Kong as a hub for PE investing. As of the Ordinance’s implementation, PE sponsors can consider Hong Kong a viable and attractive alternative fund domicile to traditional offshore jurisdictions. In a guest article, Dechert attorneys Michael P. Wong and Gilbert Cheng provide an overview of the potential advantages for sponsors of adopting a Hong Kong LPF, focusing in part on the appeal it will hold to LPs that are comfortable with the structure and the regulatory oversight it provides. In addition, the article highlights certain issues with which PE sponsors will need to grapple to comply with the LPF regime, ranging from maintaining a presence in Hong Kong to registering with appropriate agencies. See “How Private Fund Managers Can Access Investor Capital in Hong Kong and China” (Feb. 23, 2017).