Corporate Sponsorship of Investment Funds: Overview, Key Terms and Unique Governance Issues (Part One of Two)

Prospective LPs tend to invest with certain PE sponsors they perceive as having uniquely valuable knowledge and exposure to particular industries. Seizing on that reality, some corporate entities have begun sponsoring their own in-house PE funds – i.e., corporate-sponsored funds (CSFs) – that go beyond the companies’ core businesses to separately invest in opportunities in their industries. Companies that launch CSFs may realize unique benefits from leveraging their industry expertise, but they also may risk certain governance and conflicts issues associated with operating funds so closely related to their core businesses. To examine the trend of CSFs and related issues, Strafford CLE Webinars recently hosted a program featuring Skadden partners John M. Caccia and Greg Norman. This first article in a two-part series highlights the panelists’ views into core concepts and key features of CSFs; strategic advantages of corporate sponsorship and the business alignments that are critical to CSFs; and key governance and control issues for CSFs and parent entities. The second article will provide an overview of governance issues at the manager and GP levels; governance issues when exploring exit options; and a deeper dive into credit CSFs and infrastructure CSFs. For further commentary from Caccia, see our two-part series about pivoting investment strategies: “Pre-Considerations to Weigh and Options to Nimbly Amend Existing Vehicles” (Apr. 6, 2021); and “Creating Vehicles for Short-Term Opportunities and Laying the Framework for Future Disruptions” (Apr. 13, 2021).

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