Apr. 13, 2021

Adapting RWI to Secondary Transactions: Mechanics of the Insurance Policies and Obstacles Posed by Secondaries (Part One of Two)

In recent years, the use of representation and warranty insurance (RWI) has increased significantly in PE M&A transactions as a substitute for, or supplement to, traditional seller indemnities. Despite its growth in PE M&A transactions, however, RWI has not yet been widely employed in secondary transactions, including GP‑led restructurings (or “structured secondary” transactions). In this first article in a two-part series, Ropes & Gray attorneys Isabel K.R. Dische, Adam Dobson and Steven M. Kaye provide an overview of RWI policies, several key factors behind the relatively slow adoption of RWI in secondary transactions (particularly, structured secondaries) and recent developments in the available scope of coverage that could make RWI more attractive. The second article will describe how RWI products have been modified from their use in classic M&A transactions to suit GP‑led restructurings, as well as some of the pressure points in negotiations in that context. See our two-part series “The Evolution and Future of GP‑Led Restructurings”: Transaction Structuring Trends and Conflicts of Interest Management (Jun. 2, 2020); and Key Considerations When Negotiating Fees, Expenses and RWI (Jun. 9, 2020).

First 100 Days As GC/CCO: Managing Daily Work, Performing Risk Assessments and Looking Ahead (Part Three of Three)

As the end of Biden’s first 100 days as president approaches, his stakeholders – the U.S. public – are already evaluating whether he is up for the job. The same happens in a new GC/CCO’s first 100 days at a firm, as he or she is forced to adjust to the role’s rigors while simultaneously performing the position’s legal and compliance duties beginning on day one. Along with developing knowledge and relationships in their first 100 days, GC/CCOs must continuously evaluate the firms’ weaknesses and risks with an eye toward introducing reforms in the next 100 days and beyond. This third article in a three-part series analyzes how new GC/CCOs can balance getting up to speed at their new firm with performing the day-to-day legal and compliance work it requires, while also evaluating necessary changes and improvements going forward. The first article offered guidance for starting the GC/CCO role on the right foot, including how to prepare before day one and ways to set the right tone for the new role. The second article explored how GC/CCOs can prioritize gathering knowledge about the firm and building the foundation for solid relationships with key people in their first 100 days. See our three-part series: “Why Fund Managers Must Review Their Positions on Succession Planning and CCO Outsourcing” (Apr. 14, 2020); “What Fund Managers Should Consider When Hiring and Onboarding CCOs; Determining CCO Governance Structures” (Apr. 21, 2020); and “A Succession‑Planning Roadmap for Fund Managers” (Apr. 28, 2020).

Arc of the Process of Conducting a Mock Examination and the Types of Issues Reviewed (Part One of Two)

A large part of the examination “battle” is won or lost before an SEC examination begins. The problem, however, is the longest lead time a fund manager can realistically expect between notification and commencement of an SEC examination is one week. Therefore, the best way for fund managers to unearth and shore up existing risks is to voluntarily go through an SEC exam without having the SEC present. Mock examinations offer that opportunity, as they allow a third party – often a compliance consultant or law firm – to perform a similar review as the SEC, but with different goals and consequences. To help subscribers prepare for SEC and other regulatory examinations, this two-part series analyzes important factors for fund managers conducting mock examinations. This first article discusses the seven overlapping goals of mock examinations; the types of entities that perform mock examinations and the four areas of expertise they should possess; and the substance and process of a mock examination. The second article will consider whether a mock examination report should be delivered orally or in writing; contractual and legal strategies for maintaining the confidentiality of mock examinations; and considerations around disclosing the mock examination to investors. For more on SEC examinations, see “How Fund Managers Can Prepare for SEC Remote Examinations During the Coronavirus Pandemic” (Sep. 1, 2020); and “How CCOs Can Use a Sample OCIE Information Request Letter to Improve Their Compliance Programs” (Jan. 28, 2020).

Pivoting Investment Strategies: Creating Vehicles for Short‑Term Opportunities and Laying the Framework for Future Disruptions (Part Two of Two)

When market dislocations dramatically reshuffle the market in unanticipated ways, the sponsors and investors best positioned to pounce on deals – even if they fall outside of their existing funds’ strategies – can reap significant rewards. Therefore, GCs and CCOs need to be aware of the short-term and long-term resources at their disposal to support an unanticipated strategic shift. A recent Private Equity Law Report webinar explored lessons from the pandemic that can prepare sponsors and investors for the next market disruption. The discussion was moderated by Rorie A. Norton, Editor of the Private Equity Law Report, and featured Skadden partner John M. Caccia and Morgan Lewis partner Christopher J. Dlutowski. This second article in a two-part series outlines short-term machinations and long-term planning that sponsors and investors can seize upon to pursue opportunities in a market dislocation that fall outside of their funds’ investment strategies. The first article addressed issues exposed by the pandemic; pre-considerations to weigh when pivoting investment strategies; and short-term options for modifying existing fund vehicles to pursue opportunities. For further insights from Dlutowski, see “Separating the Signal From the Noise to Identify Trends in PE Structures, Processes and Terms” (Nov. 17, 2020). For additional commentary from Skadden attorneys, see “ACA Program Reviews State and Local Pay to Play Rules; Traps for the Unwary; and Compliance (Part Two of Two)” (Feb. 21, 2019).

Former SEC Enforcement Attorney Discusses Selective Disclosure Risks and Practical Solutions

The SEC has carefully scrutinized fund managers’ disclosures to investors for years to ensure managers are making required disclosures; those disclosures are accurate and complete; and they match managers’ actual operations. In addition, the SEC will raise an eyebrow, so to speak, if a manager gives certain information to some investors but not others – especially if that information gives those select investors a financial advantage. In today’s economic climate, managers should expect heightened scrutiny of any selective disclosures. The Private Equity Law Report spoke to Philip Moustakis, counsel at Seward & Kissel and former Senior Counsel in the SEC’s Division of Enforcement, about increases in investor inquiries during the pandemic; the factors managers should consider when deciding what information to provide to investors; practical steps managers can take to avoid pitfalls when responding to investor inquiries; the SEC’s focus on selective disclosures; and the importance of documenting all communications with investors. For additional commentary from Seward & Kissel attorneys, see “Affiliate Versus Third Party Debate and Other Topics in Transfer Right Provision Negotiations” (Jul. 16, 2019); and “When and How Are Fund Managers Required to Disclose Deficiency Letters to Investors? (Part Three of Three)” (Apr. 23, 2019).