Oct. 26, 2021

Launching a Secondaries Platform: Why PE Sponsors Expand Into Secondaries and Key Pre‑Considerations to Weigh (Part One of Two)

The secondary market, which is expected to reach record heights in 2021, is starting to see new players. Traditionally, secondaries funds have been raised by managers dedicated solely to secondaries. Recently, however, an increasing number of traditional PE firms – from large, multi-platform asset managers to middle-market PE buyout shops – are contemplating or have already launched secondaries platforms of their own. The trend should be distinguished from managers raising continuation funds for their own assets or managers investing in secondaries as a sleeve within an existing PE fund or fund of funds. Rather, PE sponsors with existing buyout platforms are branching out and launching their own secondaries platforms. This first article in a two-part series delves into which types of managers are pondering expansion into secondaries and why, as well as preliminary issues for those managers to consider. The second article will examine unique structural features of secondaries funds, as well as considerations around information-sharing as a PE sponsor with a secondaries platform. See our two-part series on simultaneous management of PE and private credit funds: “Use of Walls and Other Tactics to Manage MNPI Risks” (Nov. 3, 2020); and “Techniques for Properly Allocating Investments, Fees and Employees” (Nov. 10, 2020).

How Reforms of the Irish Investment Limited Partnership Vehicle Enhance Its Value for Sponsors

Ireland has a proven track record as a principal E.U. alternative investment fund domicile with a sophisticated ecosystem to support international sponsors. Ireland’s growth as a global domicile for certain private fund strategies was held back, however, by outdated features of its investment limited partnership (ILP) that failed to match best market practices. Those deficiencies were remedied by recent reforms to the ILP structure, allowing Ireland to offer the full suite of preferred legal structures for private fund strategies spanning real estate, PE, private credit and many others. In a guest article, McCann FitzGerald partner Iain Ferguson outlines changes to the Irish ILP vehicle introduced in late 2020 by the Investment Limited Partnerships (Amendment) Act, 2020 and how the vehicle is being applied in practice by fund managers. In particular, the article discusses Ireland’s merits as a fund domicile, the impetus for the recent ILP reforms, pertinent changes introduced by the reforms, key considerations for PE sponsors interested in using the ILP and factors related to the ILP as a regulated structure. See “What Does the Central Bank of Ireland’s Review of CP86 Mean for Private Fund Managers?” (Feb. 16, 2021); and “How PE Funds May Benefit From Anticipated Irish LP Vehicle Enhancements” (May 21, 2019).

Preparing for and Facilitating the Digitization, Automation and Optimization of Compliance Programs

A recent panel at ACA Group’s (ACA’s) Fall 2021 Virtual Conference explored ways compliance professionals can look ahead and prepare for the increasing digitalization of compliance; expectations for how technology can help firms prepare for regulatory examinations; methods to leverage firms’ existing platforms and resources; and tips for selecting new technologies and facilitating effective adoption by end-users. The program was moderated by Leigh Emery, director at ACA, and featured Allison Bernbach, senior counsel at Simpson Thacher; and Rosa Licea‑Mailloux, director of corporate compliance at MFS Investment Management. This article summarizes the key takeaways from the discussion. For additional insights from ACA, see our two-part series on its 2019 Compliance Survey: “Recent SEC Exam Experience; Common Code of Ethics Issues; Use of Senior Advisers; and Fee and Expense Allocations” (Jul. 9, 2019); and “Annual Meetings, Insider Trading Controls and Common Compliance Program Issues” (Jul. 16, 2019).

Specific ESG Areas of Focus for the SEC and the Role of Third‑Party Rating Agencies in Allowing ESG Comparisons (Part Two of Two)

Although environmental, social and governance (ESG) investing directly involves fund managers, investors and target entities, certain third-party actors have an outsized impact on the future of the industry. The SEC and other regulators loom large over its eventual development, with SEC Chair Gary Gensler finally settling on targeting climate disclosures, fund names and terminology to start. Third-party rating agencies are also important, however, as they will eventually be a primary source of comparative information for investors evaluating ESG funds. Those were covered in a Practising Law Institute panel moderated by Perkins Coie partner Gwendolyn A. Williamson and featuring Sharanya Mitchell, head of regulatory and international legal at Cohen & Steers; and Alexandra Russo, thematic equity and sustainability specialist at Allianz Global Investors. This second article in a two-part series identifies challenges of tracking ESG outcomes; the role of third-party ESG rating agencies; likely areas of immediate SEC regulation; and the political focus on ESG. The first article detailed how ESG strategies’ performance during the pandemic is affecting the space, as well as issues created by the lack of standardization in ESG terminology. For coverage of other PLI panels, see “Prioritizing Upper‑Tier Structures: Hazards of Overlooking Internal Arrangements and Importance of Weighing Certain Governance Issues (Part One of Two)” (Aug. 17, 2021); and “Complications of Using Standard Form Provisions and Managing Administrative Burdens of Side Letters (Part One of Two)” (Jun. 29, 2021).

Navigating Indemnification and Exculpation Provisions in Fund Documents (Part One of Two)

Periodically, the Standards Board for Alternative Investments (SBAI) – an association of alternative investment managers – publishes “toolbox” memos on topics of interest to the alternative investment industry. Its latest toolbox memo (Memo) covers indemnification and exculpation provisions in private fund governing documents. This two-part series explores the key issues raised in the Memo and associated market practice on indemnification rights, with commentary from Maria Long, SBAI content/research director; Christopher J. Dlutowski, partner at Morgan Lewis; James Oussedik, partner at Sidley Austin; and Nick Hoffman and James Smith, partner and counsel, respectively, at Harneys. This first article addresses key concerns with indemnification provisions and associated negotiating points; common indemnification terms and carve-outs; and jurisdictional differences in standards of care. The second article will explore indemnification by investors; the interplay between indemnification and exculpation clauses and between indemnification provisions and insurance; the limited opportunity to negotiate indemnification provisions; and the role of side letters. For coverage of another recent SBAI release, see our two-part series on avoiding parallel fund conflicts: “New SBAI Standards and Case Study Provide Guidance for Mitigating Conflicts” (May 5, 2020); and “Specific PE, Real Estate and Private Credit Issues and Mitigation Tips” (May 12, 2020).