Nov. 30, 2021

Placement Agents’ Evolving Role in PE Fundraising and Potential Compliance Issues Sponsors Must Consider (Part One of Two)

Placement agents continue to be a common and valuable part of many sponsors’ fundraising efforts, but their role is hardly one-size-fits-all. The services used and level of placement agent involvement can vary markedly by the asset class in question, maturity of the manager and vintage of the fund involved. Further, fund managers need to weigh a host of compliance issues, including how to oversee agents’ efforts and ensure they are properly registered and licensed. That is exacerbated by the SEC’s December 2020 amendments to Rule 206(4)‑1 under the Investment Advisers Act of 1940 (Marketing Rule), which deem communications made by placement agents on behalf of private funds to be “advertisements” subject to the compliance and disclosure requirements of the Marketing Rule. This first article in a two-part series discusses the role placement agents play in fundraising; which sponsors use what type of placement agents; and compliance issues that sponsors should consider when engaging and working with a placement agent. The second article will review common negotiation points in the placement agent agreement and potential outcomes. See “Marketing to Public Pension Plans: Honest Services Fraud, Use of Placement Agents and Lobbyist Registration Issues (Part Two of Two)” (Jun. 4, 2019).

DOL Proposes Rule Favoring Inclusion of ESG Factors in Pension Plan Investment Decisions, Further Negating Contrary Trump‑Era Guidance

It is increasingly common for fund managers to consider climate change and other environmental, social and governance (ESG) factors when making investment decisions on behalf of their funds. Investment advisers face an additional layer of concern, however, when dealing with an account or fund that comprises assets of an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 (i.e., pension plans). The U.S. Department of Labor (DOL) recently proposed amendments to its regulations (Proposed Rule) that enhance the ability of employee benefit plan fiduciaries to consider climate change and other ESG factors when investing plan assets and proxy voting the plan shares. The Proposed Rule, the latest in a series of DOL pronouncements, would replace final regulations implemented by the DOL in 2020. In a guest article, Kramer Levin special counsel Avram J. Cahn details DOL pronouncements over the years, key tenets of the Proposed Rules and relevant takeaways for fund managers. For more on employee benefit plans, see “What Should Fund Managers Expect When ERISA Plans Conduct Due Diligence On and Negotiate For Investments in Their Funds?” (Jun. 20, 2013).

Conflicts From Managing Multiple Funds and Other Current Challenges to Effective Compliance at PE Funds

With the SEC issuing a steady stream of statements promising enhanced scrutiny and new regulations, compliance professionals at private funds are scrambling to keep up. In addition to the Commission’s sharpened focus on environmental, social and governance investing, market trends have also created new versions of familiar conflicts that compliance teams must address, even as a continued remote work environment for many firms forces compliance professionals to go above and beyond to oversee employees. Those and other issues were addressed in a recent Practising Law Institute panel moderated by Gibson Dunn partner Mark K. Schonfeld, which featured Eric M. Albert, CCO and legal counsel at Holocene Advisors, LP; Kenneth J. Burke, head of compliance and senior counsel at Vista Credit Partners Management, LLC; and Igor Rozenblit, founder and partner at Iron Road Partners and former Co‑Head of the SEC’s Private Funds Unit. This article summarizes key takeaways from the discussion. For additional commentary from Rozenblit, see our two-part series: “Former Co‑Head of SEC Private Funds Unit Describes His New Consulting Firm and the Regulator’s Stance on ESG” (Jul. 20, 2021); and “Former Co‑Head of SEC Private Funds Unit Details Common PE Compliance Deficiencies and Steps to Avoid SEC Scrutiny” (Jul. 27, 2021).

Upcoming Taxonomy Regulation Compliance Deadlines and the Interplay Between SFDR and MiFID II (Part Two of Two)

The E.U. has long been at the forefront of environmental, social and governance (ESG) regulations, most notably in setting forth the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation. Implementation of those regulations has been haphazard, however, as they have both been beset with delays in various related deadlines. Further, E.U. fund managers are beginning to confront the complicated reality of attempting to simultaneously comply with those new E.U. ESG regulations on the one hand and certain existing E.U. regulations – i.e., the Alternative Investment Fund Managers Directive (AIFMD), Markets in Financial Instruments Directive (MiFID II) and Undertakings for Collective Investment in Transferable Securities (UCITS) – on the other. Those topics and more were examined in a recent Maples Group webinar, which was moderated by partner Peter Stapleton and featured his fellow partners Stephen Carty and Ian Conlon. This second article in a two-part series identifies upcoming requirements associated with the Taxonomy Regulation, as well as certain obstacles when attempting to simultaneously comply with SFDR and MiFID II. The first article offered updates on timing and deliverables under Level 1 and Level 2 of SFDR, as well as its impact on AIFMD, MiFID II and UCITS. See “How ESG Disclosure Requirements Under the E.U.’s SFDR May Impact U.S. Fund Managers” (Sep. 14, 2021).

Interest in Private Credit Remains Strong, According to ACC/PCFI Survey

The Alternative Credit Council (ACC), an affiliate of the Alternative Investment Management Association (AIMA), in collaboration with Private Credit Fund Intelligence (PCFI), recently issued the results of their survey of private credit (PC) investors’ appetite in the second half of 2021 for alternative investments in general and PC in particular. Notably, ACC/PCFI found that demand for PC remains strong, with the overwhelming majority of respondents satisfied with the performance of PC investments in the first half of this year and more than one-third planning to increase allocations going forward. This article examines the survey’s key findings, with commentary from James Sivyer, head of investor research at PCFI Insights, and Nick Smith, director of PC at the ACC. For more from AIMA, see “Current Status of Brexit and Overcoming Cross‑Border Marketing Obstacles It Introduces (Part One of Two)” (Jun. 15, 2021); and “Practical Guidance for Advisers Seeking to Foster Diversity and Inclusion” (Jul. 14, 2020).