Large institutional investors occasionally feel constrained by the limits imposed by traditional, commingled PE funds. Those investors sometimes ask sponsors to launch single investor funds (SIFs) – i.e.
, funds of one – with bespoke investment strategies that better suit their risk tolerances, investment priorities, financial bandwidth and other unique traits. Although that tends to mutually benefit sponsors, it requires GCs and CCOs to be far more vigilant about how they allocate investment opportunities between SIFs and their other commingled PE funds. This first article in a two-part series considers why investors find the flexible investment opportunities of SIFs appealing; factors that could potentially lead to inequitable allocations between SIFs and commingled funds; and steps sponsors can take to mitigate those risks. The second article
will identify certain of the unique fee and expense arrangements investors negotiate to maximize the value of their SIFs, along with tips for how to allocate and disclose associated expenses to avoid conflicts of interest. See our two-part series: “Fund Manager and Investor Benefits Fueling the Increasing Popularity of Single Investor Funds
” (Aug. 3, 2021); and “Common Approaches to Structuring Single Investor Funds and Enhanced Information Rights Sought by Investors
” (Aug. 17, 2021).