The Growth of Preferred Equity: Future Trends in the Asset Class and Options for Sponsor‑ and LP‑Level Liquidity (Part Two of Two)

PE sponsors scrambled at the outset of the pandemic to learn how preferred equity could offer liquidity for their portfolio companies. Preferred equity is not limited to fund-level applications, however, as it is frequently used at the sponsor and LP levels to provide much-desired liquidity to those respective parties. As its flexibility and utility is more widely understood across the industry, adoption of preferred equity among PE sponsors will likely grow in the coming years. A recent Private Equity Law Report webinar, entitled “The Growth of Preferred Equity As a Liquidity Solution in Three Contexts,” addressed those and various other facets of preferred equity. Moderated by Rorie A. Norton, Editor of the Private Equity Law Report, the webinar featured Simpson Thacher partner Peter H. Gilman and Proskauer Rose partner Michael R. Suppappola. This second article in a two-part series describes the role of preferred equity in GP-stake acquisitions and LP transactions on the secondary market to provide liquidity to those respective parties, along with potential preferred equity trends to anticipate. The first article detailed features of preferred equity; pros and cons for sponsors considering it in the future; and various fund-level applications of note. For further commentary from Suppappola, see our two-part series: “Current State of the Secondary Market and Likely Pandemic-Related Trends for the Rest of 2020” (Jun. 23, 2020); and “Evolving Deal Terms, Fundraising Issues and Regulatory Considerations in the Secondary Market During the Pandemic” (Jun. 30, 2020).

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