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    Jul. 10, 2025

Multi‑Entity Fund Complexes and the Investment Company Act: Look‑Through Rules, Integration Doctrine and Related Considerations

A significant portion of private funds rely on the exemptions from registration under either Section 3(c)(1) or Section 3(c)(7)  (Registration Exemptions) of the Investment Company Act of 1940. Section 3(c)(1) exempts issuers whose outstanding securities are beneficially owned by 100 or fewer persons (100‑Person Limit). Alternatively, Section 3(c)(7) exempts issuers whose outstanding securities are owned exclusively by persons who, at the time of acquisition or transfer of such securities, are qualified purchasers (i.e., most partnerships, corporations and other legal entities with at least $25 million in investments) (together with the 100‑Person Limit, the Exemption Requirements). To rely on a Registration Exemption, sponsors must include appropriate questionnaires in their funds’ subscription documents and transfer agreements to ensure compliance with applicable Exemption Requirements. Further, sponsors need to understand how the Exemption Requirements are affected, if at all, by certain look-through rules and integration requirements developed by the SEC. In a guest article, Lowenstein Sandler attorneys Edward S. Nadel and John B. Meyer explore how sponsors can ensure their funds comply with Exemption Requirements after applying certain look-through rules and the integration doctrine, with a special focus on multi-entity fund complexes. For more insights from Lowenstein Sandler, see “Preparing to Comply With FinCEN’s AML/CFT Rules” (Jun. 26, 2025); and “Limited AI and Alternative Data Adoption for Legal and Compliance Efforts, According to Survey” (May 1, 2025).

Ways That DPI Calculations Can Be Distorted to Mislead LPs (Part Two of Two)

As investors increasingly rely on a fund’s distributed to paid-in capital (DPI) ratio to measure investors’ cashflow experience, the industry is becoming more sophisticated about the different fund management practices that can artificially inflate and distort funds’ DPI figures. Those distortions raise concerns about the transparency of disclosures provided to existing and prospective fund investors, as well as about fund-level risk management practices used by sponsors. The most prominent technique for manipulating DPI figures is for fund managers to issue “synthetic” distributions via borrowings under fund financing facilities, which is rapidly becoming discouraged in the industry. There are other fund management practices that LPs should be aware of, however, that can similarly juice a fund’s DPI, such as using full fund flow calculations; including special or affiliate investors in the figures; prematurely selling assets; recalling distributions; using syndication arrangements; and miscalculating returns of excess capital. This second article in a two-part series explores the myriad fund management practices that can potentially distort DPI calculations, why they are so concerning for investors and steps that LPs can take to protect themselves. The first article explained what DPI is; variables to consider when calculating and evaluating DPI; its rising popularity in the private funds industry; and how different classes of investors are using DPI figures. See our two-part series on IRR calculations: “Fundamental Flaws of IRR and How Sponsors Can Avoid Distorted Calculations” (Nov. 12, 2019); and “Practical Steps Investors Can Follow to Diligence Flawed IRR Calculations” (Nov. 19, 2019).

SEC Examinations Staff Shine a Light on How Registrants Are Selected and Ways to Excel During an Exam

The Practising Law Institute (PLI) recently hosted the “SEC Speaks in 2025” event, which included a panel from the SEC’s Division of Examinations (Division) featuring representatives from four different programs within the Division: Lindsay Topolosky, Regulatory Counsel for the Investment Adviser/Investment Company National Exam Program Office; Grant A. Gartman, Assistant Director in the Office of FINRA and Securities Industry Oversight; Colin Ray, Assistant Director in the Office of Broker-Dealer and Exchange Exams; and Joseph Murphy, Senior Regulatory Counsel, Technology Controls Program. To provide registrants with insights into examinations, the speakers discussed considerations the staff weigh when deciding which registrants to examine, the life cycle of an examination and tips for communicating effectively with exam teams. This article summarizes the insights offered by the SEC panelists, all of whom provided the standard disclaimer that their remarks were made in their official capacity as staff but do not necessarily reflect the views of the SEC, the commissioners or other members of the staff. For coverage of other PLI programs, see “Potential Areas of Scrutiny in Future SEC Examinations of PE Sponsors” (Jan. 9, 2025); and “To Work Effectively, CCOs Need Authority, Autonomy and Information” (Dec. 12, 2024).

To Roll or To Sell: LP Diligence Guidance and Election Options in Continuation Vehicles (Part Two of Two)

Despite the booming popularity and mainstream status that continuation vehicles and other GP‑led transactions have had with sponsors in recent years, the uptake among investors has been comparatively muted. In lieu of participating in complicated, hurried continuation vehicle transactions, the vast majority of investors have opted to simply sell their stakes. That is slowly changing, however, as investors bolster their relative sophistication and develop processes for accommodating the hastened time frames of the transactions. To that end, Morgan Lewis hosted a webinar featuring partners John D. Cleaver and Carrie J. Rief to guide investors on how to diligence continuation vehicles and make informed roll/sell elections. This second article in a two-part series details issues LPs should diligence when scrutinizing continuation vehicles, as well as the election options available to LPs. The first article described the increase in LP interest in rolling into continuation vehicles, the steps involved in the transaction process and factors LPs should weigh when evaluating roll opportunities. See our two-part series on multi‑asset, multi‑fund GP‑led transactions: “Traversing Potential Conflicts and LP Election Options” (Feb. 8, 2024); and “Ancillary Considerations and Regulatory Requirements to Weigh” (Feb. 22, 2024).

Drafting Effective Key Person Provisions for Private Funds (Part One of Two)

Although private funds vary widely in terms of size, profile and investment strategy, it is not uncommon for a single individual at a fund to wield vast authority and oversee most or all investments. Often, that same person – who may be the founder, managing partner or head portfolio manager, for example – conducts outreach, brings new investors on board, builds relationships, and commands the trust and respect of investors, who may not want to grant oversight of their money to anyone else. If someone wielding so much responsibility were to die suddenly, fall chronically ill, quit, retire or otherwise cease to be part of the fund’s operations, the consequences could be dramatic. Some investors may seek to redeem their shares as fast as possible and exit the fund, while others may wish to stay on under new leadership, necessitating careful succession planning. Thus, it is imperative for private funds to have the right key person provisions in their governing documents. This first article in a two-part series explains what key person provisions are and in which documents they typically appear; the terms of such provisions, including which personnel they cover, what scenarios could trigger them and investor rights if they are triggered; why they are vitally important in the SEC’s eyes; and how they relate to succession planning. The second article will delve into the operational logistics of what happens when a key person event occurs. See “Top Tips for Effective GC Succession Planning and Training” (Nov. 2, 2023); and “A Succession‑Planning Roadmap for Fund Managers (Part Three of Three)” (Apr. 28, 2020).

Kirkland Adds Three Investment Funds Partners in New York

Three new partners – Susan Burkhardt, Andrew J. Gershon and Semhar M. Woldai – have joined Kirkland & Ellis’ investment funds group in its New York office. Burkhardt focuses primarily on private credit funds, while Gershon and Woldai specialize in liquidity solutions and secondary transactions. See “Asset Managers’ Perspectives on Secondary Market Challenges and Product Expansion” (Jan. 11, 2024); and “Liquidity Solutions Pursued by Sponsors in a Harried Fundraising and Deal Environment (Part One of Two)” (Jan. 25, 2022).

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