For all the excitement surrounding investments by minority stake funds in general partners and management entities of PE sponsors, the unique character of these transactions requires parties to be mindful of potential issues along the way. Each party needs to negotiate particular covenants beyond those typically addressed in traditional PE deals, while also steering clear of potential conflicts of interest. The Private Equity Law Report recently interviewed Simpson Thacher partner Peter H. Gilman about common issues with minority stake transactions and possible solutions parties can pursue. This first article in a two-part series provides Gilman’s insights on how buyers protect their passive investments in PE sponsors, how sellers preserve their independent operations and what risks are associated with the parties being deemed “affiliates” because of the transaction. In the second article, Gilman will detail important fund document provisions based on the revenue streams of these investments, ways buyers manage the limited liquidity of their minority stake interests and potential future trends in this area. For further commentary from Gilman on selling minority stakes in PE firms, see our prior two-part interview series: “Recent Trends and Structural Considerations” (Apr. 2, 2019); and “The Appeal of Stable and Early Income Streams” (Apr. 9, 2019).