Merits of the Pledge Fund Model and Attendant Fund Formation Issues to Consider (Part One of Two)

The current market conditions have forced PE sponsors to be more patient and creative when raising funds to take advantage of the market downturn. One approach is to launch a pledge fund – which is appealing to investors for the reduced fees and increased discretion it gives them over how their money is invested – in lieu of a traditional blind-pool PE fund. Strafford CLE Webinars recently hosted a program providing an overview of items to consider when launching a pledge fund which was presented by Willkie Farr partners, Anne C. Choe and Mark Proctor. This first article in a two-part series highlights the basics of pledge funds; examines the pros and cons of the model compared to blind-pool and deal-by-deal funds; and explores the various structural approaches and mechanics involved with pledge funds. The second article will detail certain regulatory and legal issues facing pledge funds, as well as key terms and operational considerations. See our three-part guide to pledge funds: “High Upside Fee Structure and Other Incentives for Adoption” (Apr. 9, 2019); “Key Investment Management Agreement Provisions” (Apr. 16, 2019); and “Deal Uncertainty Issues and Three Investment Vehicle Structures” (Apr. 23, 2019).

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