Jul. 27, 2021

Overview of How Insurance Dedicated Funds Offer the Returns of Private Funds With the Favorable Tax Treatment of Insurance Products

Private funds employ innumerable different strategies. Some of those strategies can result in significant U.S. federal income tax burdens, however, either for the funds themselves or for their investors. Although those inherent inefficiencies have been ameliorated in some cases by decades of iteratively refined structures and thoughtful planning, insurance products often remain more tax efficient than private funds for their respective investors. As a result, there are a number of situations in which investors may prefer to access investment strategies through an insurance product, rather than a private fund. Those privately offered insurance products, typically either life insurance policies or variable annuities, invest in turn in private insurance dedicated funds (IDFs). In a guest article, K&L Gates partners Mark C. Amorosi and Yasho Lahiri provide an overview of the architecture of an IDF; the tax and regulatory considerations arising from its creation; and the various circumstances where an IDF can be attractive. For more on IDFs, see “Alternative Private Credit Structures: Adopting Insurance Dedicated Funds for Favorable Tax Treatment (Part Two of Two)” (Oct. 20, 2020); and “Direct Lending Funds: Five Structures to Mitigate Tax Burdens for Various Investor Types (Part Two of Two)” (Dec. 10, 2019).

Former Co‑Head of SEC Private Funds Unit Details Common PE Compliance Deficiencies and Steps to Avoid SEC Scrutiny (Part Two of Two)

Compliance efforts and practices of PE sponsors have improved significantly in the decade plus that Igor Rozenblit spent at the SEC, most recently as Co‑Head of the Private Funds Unit. Nonetheless, for all the ways that sponsors have leveled up their compliance measures and disclosures to investors, there remain notable ways that many sponsors’ practices are deficient. Whether it’s inadequate disclosures when affiliates act as service providers to funds or imprecise approaches to preparing valuations, the SEC continues to home in on practices that impact investors the most. In connection with his recent departure from the SEC, the Private Equity Law Report interviewed Rozenblit on the new consulting firm – Iron Road Partners – he formed and issues that should be top of mind for all sponsors. This second article in a two-part series outlines certain areas (e.g., expense allocations and investor disclosures) being prioritized by the SEC and suggests steps PE sponsors can take to avoid scrutiny. The first article covered Rozenblit’s SEC tenure, the focus of his consulting firm and ways the Agency is addressing issues related to certain hot topics in the private funds industry. For additional commentary from Rozenblit, see “Perspectives From the Private Funds Unit” (Feb. 11, 2016); and “Operations and Priorities of the Private Funds Unit” (Sep. 24, 2015).

Electronic Communications: Using Third Parties for Compliance, Mitigating Social Media Risks and Fulfilling Document Requests (Part Three of Three)

As with most compliance practices at private funds, a firm’s responsibilities to monitor, preserve and produce the electronic communications of its employees have far exceeded most firms’ in-house capacities. That is exacerbated by the pervasiveness of social media and other forms of electronic messaging that blur the line between personal and business messages. As a result, fund managers are forced to develop hybrid monitoring models that rely on service providers; to remain vigilant and nimble when overseeing the social media efforts of their employees; and to explore new techniques for capturing and archiving those communications in case the SEC or another regulator requests them in an examination. This final article in a three-part series explains ways that fund managers can work with service providers to capture, archive and surveil their employees’ electronic communications and social media practices. The first article provided an overview of recent regulatory measures – ranging from guidance to enforcement actions – related to electronic communications, as well as certain trends that are exacerbating the topic’s significance for fund managers. The second article suggested several types of considerations that fund managers should weigh when preparing employee training regimens, as well as policies and procedures, directed at rooting out improper electronic communication practices. See “Business Emails Must Be Secure to Avoid SEC Enforcement Action” (May 12, 2016); and “Survey Highlights Compliance Professionals’ Attitudes and Practices Concerning Electronic Communications Compliance” (Feb. 9, 2012).

Umbrella Credit Facilities: Special Challenges Posed and Tips for Overcoming Them (Part Two of Two)

PE sponsors constantly search for new ways to streamline their management of funds to optimize both the costs and time associated therewith. To that end, the use of series LLC vehicles to form funds has been one example of that effort, although their adoption has been limited. An analogue in the fund financing context is the umbrella credit facility, which is a capital call subscription facility with multiple borrowers under a single credit agreement. Although it offers many of the intended efficiencies sought by sponsors, it also presents a number of challenges for sponsors, fund borrowers and lenders to navigate. Strafford CLE Webinars recently hosted a program to explore the nuances of umbrella credit facilities that featured Thomas Draper, partner at Foley Hoag; Monika Singh Sanford, partner at Haynes and Boone; and Ramya S. Tiller, partner at Debevoise & Plimpton. This second article in a two-part series examines some specific challenges associated with umbrella facilities, including managing cross defaults and foreign currency advances. The first article summarized the key features of umbrella credit facilities and who uses them, in addition to discussing the benefits and downsides of the facilities. See our two-part series: “Using Delaware Statutory Series LLCs to Offer Customization to Investors” (Apr. 20, 2021); and “Uncertainty Surrounding Liability Shields and Cost Savings of Series LLCs” (Apr. 27, 2021).

Diversity and Inclusion in Asset Management: Key Challenges and Impacts of 2020 Events (Part One of Two)

The social upheaval of 2020 shed a bright new light on persistent and pervasive social and economic injustice. The investment management industry, especially the front office, has traditionally been a white male bastion. A panel at the Clifford Chance Global Funds Conference 2021 took a deep dive into the state of diversity and inclusion (D&I) in the investment management industry. Fionnuala Oomen, head of strategy and delivery in the London private funds group at Clifford Chance, moderated the discussion, which featured Clifford Chance inclusion, diversity and wellbeing specialist Leana Coopoosamy and senior associate Alice Jefferis, as well as Adebanke Adeyemo, GC at Vantage Infrastructure; Justin Onuekwusi, fund manager at Legal & General Investment Management; and Karis Stander, managing director of Investment20/20. This first article in a two-part series explores the panel’s analysis of the key challenges in fostering D&I and the impact of the events of 2020. The second article will cover the panel’s discussion of the structural barriers to D&I, strategies for overcoming those barriers and the impact of investors on D&I. See “Practical Guidance for Advisers Seeking to Foster Diversity and Inclusion” (Jul. 14, 2020).