Aug 31, 2021
Cybersecurity and environmental, social and governance (ESG) investing have become two of the most prominent issues in PE investing and portfolio company management. Despite fundamental differences in the two areas, it is possible for a PE sponsor to wield a portfolio monitoring approach that functionally oversees both areas for each of its portfolio companies. Effective oversight of each area can better position sponsors to implement robust policies, procedures and controls at their portfolio companies. A recent ACA Group (ACA) program explored the current cyber threat landscape; trends in ESG investing; regulatory developments affecting ESG and cybersecurity; and the potential intersection of ESG and cybersecurity governance and oversight. The program featured ACA partner Dan Mistler and ACA Aponix partner Chad Allan Neale. This article distills their insights. See “Emerging Trends in LP Demands for Standardized ESG Reporting and How GPs Have Attempted to Comply” (Jul. 20, 2021); and “Fund Managers Should Use a Checklist to Ensure a Privacy Compliant Return to Work” (Jan. 26, 2021).
Aug 31, 2021
Tax Developments and Fund Manager Compensation: Carried Interest Waivers and In‑Kind Distributions (Part Two of Two)
PE sponsors are often caught in a precarious position of attempting to maximize their compensation under the prevailing U.S. tax rules while also minimizing the risks associated with those measures. Although that is most notably associated with decisions about whether to exercise management fee and carried interest waivers, it is hardly limited to those contexts. For example, the recent growth of special purpose acquisition companies and explosion of associated transactions have also contributed to an increase in marketable securities and a focus on in-kind distributions. Given that tax matters are constantly evolving, Foundation Research Associates examined recent developments affecting PE funds in a program featuring Finn Dixon & Herling partner Michael P. Spiro and Proskauer partner Amanda H. Nussbaum. This second article in a two-part series analyzes tax issues relating to carried interest waivers and in-kind distributions, and the first article addressed management fee waivers. See our two-part series “Potential Impact of Biden Tax Proposals in the 2022 Fiscal Year Green Book on Private Funds and Their Principals”: Part One (Aug. 3, 2021); and Part Two (Aug. 17, 2021).
Aug 24, 2021
Proposed tax reforms recently announced by the Biden administration include increased tax rates for ordinary income and capital gains, as well as a proposal to treat carried interest as ordinary income. Those and other proposed regulations have brought management fee waivers and carried interest waivers into the spotlight for the PE industry, as the latent risks associated with those waivers could increase substantially and jeopardize fund managers’ existing compensation arrangements. To that end, Foundation Research Associates (FRA) recently hosted a webinar examining hot-button tax issues for PE funds, specifically as they relate to GP compensation. The program featured Proskauer partner Amanda H. Nussbaum and Finn Dixon & Herling partner Michael P. Spiro. This first article in a two-part series considers tax developments affecting management fee waivers, and the second article will address carried interest waivers and in-kind distributions. For coverage of a previous FRA program, see our two-part series: “New Tax Regulations Threaten Traditional Private Fund Structures and GPs’ Ability to Offset Incentive Allocations With Liabilities” (Feb. 2, 2021); and “Impact of New Tax Reporting and Ways Fund Managers Can Mitigate Harm of New Partnership Liability Allocation Rules” (Feb. 16, 2021).
Aug 24, 2021
Prioritizing Upper‑Tier Structures: Pitfalls to Avoid and the Value of Restrictive Covenants When Managing Personnel (Part Two of Two)
Upon launching a new firm, founders carefully detail the economics of the arrangement to ensure everyone is compensated appropriately. Less thought is given, however, to structures and restrictive covenants that can not only protect the firm if the founders’ relationship unravels, but also facilitate cohesive governance along the way. Foresight as to those issues can, however, drastically improve the long-term health of the company and reduce the drama associated with major events that arise during a firm’s existence. An expert panel laid out that argument in favor of advance planning of upper-tier structures at a recent program hosted by the Practising Law Institute. Moderated by Paul Weiss partner Udi Grofman, the panel featured Amanda N. Persaud, partner at Ropes & Gray; Olga Gutman, partner at Simpson Thacher & Bartlett; and Whitney A. Chatterjee, partner at Sullivan & Cromwell. This second article in a two-part series sets forth useful restrictive covenants for managing employees and related considerations, as well as problems some firms have confronted when seeking to update their internal arrangements. The first article reviewed why fund managers often inadequately address internal arrangements in their upper-tier documents, as well as strategic transactions that can trigger their relevance and material governance issues that can arise. For additional insights from Persaud and Grofman, respectively, see “How PE Can Drive Diversity, Equity and Inclusion Internally, at Portfolio Companies and Industrywide” (Mar. 23, 2021); and “How and Why Fund Managers Are Capitalizing on Co‑Investment Opportunities” (Dec. 11, 2014).
Aug 17, 2021
In the face of ever-increasing regulatory requirements, advisers may consider regulatory technology solutions (RegTech) to make their compliance processes more effective and efficient. A recent program at ACA Group’s Spring 2021 Virtual Conference examined how RegTech can be used to automate and facilitate compliance communications; regulatory filings; document management; vendor management; and preparation for SEC examinations. One panelist also discussed how RegTech assisted a new adviser with navigating its first SEC exam. The program featured ACA Group directors Leigh Emery and Elaine Vincent, as well as Shannon McLaughlin, CCO and controller at Boulevard Family Wealth. This article distills their insights. See our two-part series: “The Evolution, Status and Future of RegTech in the Private Funds Industry” (Mar. 3, 2020); and “Using RegTech for Compliance Efforts and Potential Benefits of Emerging Technologies” (Mar. 10, 2020).
Aug 17, 2021
Prioritizing Upper‑Tier Structures: Hazards of Overlooking Internal Arrangements and Importance of Weighing Certain Governance Issues (Part One of Two)
There are numerous demands on founders’ time and attention when starting a new PE firm, and the firm’s internal arrangements are likely to be put on hold until after the enterprise is underway. Frequently, however, internal arrangements do not reemerge at the top of the priority list until a strategic transaction is on the horizon or partners wish to leave the firm, and it may not be so easy to resolve any outstanding issues by that point. Those and other related issues of upper-tier structures were addressed by an expert panel at the Practising Law Institute’s recent Advanced Issues in Private Funds 2021 program. The panel was moderated by Paul Weiss partner Udi Grofman and featured Whitney A. Chatterjee, partner at Sullivan & Cromwell; Olga Gutman, partner at Simpson Thacher & Bartlett; and Amanda N. Persaud, partner at Ropes & Gray. This first article in a two-part series details fund managers’ failure to properly address internal arrangements in upper-tier documents, the circumstances that can trigger issues in the arrangements and governance issues (e.g., voting and succession planning) to consider. The second article will describe the role of restrictive covenants in managing a firm’s personnel, as well as pitfalls that may result from failing to address or review internal arrangements. See “Key Governance, Personnel and Structuring Issues to Address When Forming a PE Firm (Part One of Two)” (Nov. 17, 2020); and “PLI Panel Explores Approaches to GP Succession Planning” (Oct. 8, 2019).
Aug 17, 2021
Potential Impact of Biden Tax Proposals in the 2022 Fiscal Year Green Book on Private Funds and Their Principals (Part Two of Two)
The process of enacting new legislation often requires politicians to participate in complicated negotiations involving the give-and-take of points. Unfortunately, potentially material tax changes are the bargaining chips being wielded in connection with the Biden administration’s infrastructure plan. The Foundation Research Associates recently hosted a program examining potential tax changes most relevant to private funds under the American Jobs Plan, Made in America Tax Plan and American Families Plan. Notably, the panelists – KPMG principal Anthony Tuths and Citrin Cooperman principal Jean‑Paul Schwarz – not only analyzed the proposed tax changes, but also opined on the likelihood of each being included in the final legislation. This second article in a two-part series reviews proposals to increase tax rates for ordinary income and capital gains; tax carried interest as ordinary income; and subject LPs to self-employment tax in certain situations. The first article explored the current political landscape behind the proposed tax changes, as well as the proposal to treat transfers of appreciated property by gift or on death as realization events. See our three-part series on tax issues and estate-planning: “Obstacles Associated With Transferring Carried Interest in PE Funds” (Jan. 14, 2020); “Strategies for Transferring Rights to Carried Interest in PE Funds” (Jan. 21, 2020); and “Possible Solutions for Tax Problems With Valuing Gifts and Sales of Carried Interest in PE Funds When Estate Planning” (Jan. 28, 2020).
Jul 20, 2021
Umbrella credit facilities are a byproduct of the ongoing collaboration between PE sponsors and lenders to diversify the fund finance offerings in the market. Structured as a single credit facility with multiple borrowers, an umbrella credit facility can be smoother to negotiate versus having multiple credit agreements; easier to oversee as part of a fund platform; and more cost effective in terms of the associated fees. Umbrella facilities also can prove prohibitive, however, if a sponsor’s multiple fund borrowers have different structures and needs. To examine the unique features of umbrella facilities and the appeal they hold for sponsors, Strafford CLE Webinars recently hosted a program featuring Ramya S. Tiller, partner at Debevoise & Plimpton; Thomas Draper, partner at Foley Hoag; and Monika Singh Sanford, partner at Haynes and Boone. This first article in a two-part series furnishes an overview of the key features of umbrella credit facilities and who uses them, in addition to discussing the attractions and drawbacks of the facilities. The second article will examine some of the specific challenges that may arise for sponsors, fund borrowers and lenders involved with the facilities. For further commentary from Draper, see our two-part series on trends in the use of subscription credit facilities: “Advantages for PE Investors and Sponsors Have Led to Adoption by Some Hedge Funds and Credit Funds” (Jan. 24, 2019); and “Structuring Considerations Negotiated With Lenders and Important LPA and Side Letter Provisions” (Feb. 7, 2019).
Jul 20, 2021
Environmental, social and governance (ESG) issues have rapidly become relevant to PE firms across the board, rather than just those with an ESG focus. LPs are driving that interest by peppering GPs with questions about ESG factors – particularly diversity, equality and inclusion (DEI) issues – at their PE firms and portfolio companies as part of their operational due diligence. Beyond merely appeasing investors’ interest, however, GPs are pursuing ESG agendas in the hope, among other things, of creating value in their portfolios. Accurate and relevant ESG information is therefore key to those industry developments, but standardized ESG reporting remains in the early stages of development. To address some of those and other current issues around ESG and DEI reporting, Privcap Media recently hosted a webinar moderated by Privcap Media partner David Snow and featuring Ignacio Sarria, managing director at New Mountain Capital; Meghan McAlpine, director, strategy and product marketing at SS&C Intralinks; and Meg Lentz, principal at Malk Partners. This article summarizes the key insights and takeaways from the discussion. For coverage of another Privcap Media webinar, see “LPs Are Increasingly Frustrated GPs’ Outdated Technology and Non-Standardized Reporting” (Dec. 15, 2020).
Jul 13, 2021
The tenor and tone of the SEC under new Chair Gary Gensler is still taking shape, which has left much of the private funds industry on tenterhooks as to what the future holds. To fill that knowledge gap, industry experts and former SEC staff members are leaning on their past experience to forecast how and on what the SEC will focus in future examinations and enforcement actions. In that vein, Dechert recently hosted a panel to discuss what the private fund industry can expect from the SEC under Gensler. The discussion was moderated by Dechert partner Catherine Botticelli and featured Bruce Karpati, partner and global CCO at KKR; Scott Weisman, managing director and global CCO at Bain Capital; and Guy F. Talarico, founder and CEO of Alaric Compliance. This article highlights the key takeaways and insights from the webinar, including the likelihood of increased compliance enforcement cases under Gensler; the ramifications of the new task force that was formed to focus on environmental, social and governance issues; practical tips for dealing with the SEC; and key areas of focus as to special purpose acquisition companies and cybersecurity. See our two-part series on former SEC staff’s forecasts: “Biden Administration’s Potential Impact on the Agency’s Enforcement Efforts” (Dec. 1, 2020); and “Aggressive Private Funds Scrutiny to Be a Priority Under the Biden Administration” (Dec. 8, 2020).
Mar 03, 2021
When it began a year ago, the pandemic completely altered the PE industry’s perception of the strength of businesses and industries. Special situations, distressed debt and communications software became hot sectors, while others (e.g., consumer, restaurants, etc.) languished. As PE investment professionals rushed to take advantage of unforeseen opportunities outside their funds’ investment mandates, GCs and CCOs were asked to pave the way for those new investments. Whether by modifying existing funds’ investment strategies or rapidly launching new funds, legal counsel and compliance officers were forced to react nimbly, navigate unforeseen issues and advise investment committees on how best to proceed. That experience provided valuable lessons for when GCs and CCOs confront the next major market disruption, while also revealing certain prophylactic measures that can be taken to allow adaptability in the future. Those lessons were discussed in a webinar on March 3, 2021, co‑hosted by the Private Equity Law Report (PELR) and LexisNexis. The program was moderated by Rorie A. Norton, Editor of the PELR, and will feature Skadden partner John M. Caccia and Morgan Lewis partner Christopher J. Dlutowski.
Oct 15, 2020
The Private Equity Law Report hosted a webinar exploring the rising adoption of preferred equity in the PE industry and several contexts where it is used. The webinar, entitled “The Growth of Preferred Equity As a Liquidity Solution in Three Contexts,” was moderated by Rorie A. Norton, Editor of the Private Equity Law Report, and featured Simpson Thacher partner Peter H. Gilman and Proskauer Rose partner Michael R. Suppappola. To listen to a recording of the webinar, click here.
Mar 13, 2020
To help keep PE sponsors and institutional investors apprised of the latest developments in GP‑led restructurings, the Private Equity Law Report hosted a webinar, entitled “The Evolution and Future of GP‑Led Restructurings.” In addition to charting the rapid growth and adoption of GP‑led restructurings in recent years, the program provided a comprehensive exploration and update of various developments with those transactions. Moderated by Rorie A. Norton, Editor of the Private Equity Law Report, the webinar featured Davis Polk partner Leor Landa and Kirkland & Ellis partner Ted Cardos.
Jun 12, 2019
This webinar discussed how although prospect of generating alpha while making a positive social impact has catalyzed many investors and private equity (PE) sponsors to pursue impact investing strategies, most are finding that this area is far more nuanced and challenging than anticipated. Moderated by Rorie A. Norton, Editor of the Private Equity Law Report, the webinar featured Ellen Kaye Fleishhacker, partner and co-head of the investment management practice at Arnold & Porter; Raúl Pomares, founder and managing director of Sonen Capital LLC; and Christine Looney, deputy director of the mission investments team at the Ford Foundation. The discussion provided a comprehensive discussion and update on a number of impact investing-related issues.
Nov 15, 2018
In addition to discussing key considerations and prevailing trends in the use of subscription credit facilities by private fund managers, this fireside chat touched on a range of topics related to subscription credit facilities, including the appeal of these facilities; ways they are used by managers; methods for addressing investor and SEC scrutiny of these facilities; trends in structuring and negotiating these facilities; their recent adoption by other private fund vehicles (e.g., hedge funds and direct lending funds); and an overview of other types of facilities commonly used by private funds (e.g., portfolio liquidity facilities and management company facilities). The webinar was moderated by Rorie Norton of the Hedge Fund Law Report and featured Thomas Draper, partner at Foley Hoag, and Michael Mascia, partner at Cadwalader.
Jun 28, 2018
Robin L. Barton, Senior Reporter at The Hedge Fund Law Report, hosted a one-on-one discussion with Richard J. Rabin, partner at Akin Gump and head of the New York office’s labor and employment group. In addition to discussing current trends and developments in employment law, the program tackled various pressing employment topics, such as sexual harassment in the workplace, including the #MeToo movement and associated legislation; pay equity and related lawsuits in the private funds industry; developments in arbitration and what they mean for fund managers; the Trump NLRB and its implications for the private funds industry; bans on requesting salary history information; and family-, sick- and safe-leave requirements. CLE credit is available in NY, NJ, CA and TX.
Nov 13, 2017
In this webinar, panelists discussed how advisers can avoid common deficiencies in their marketing materials and advertising practices under Rule 206(4)-1 of the Investment Advisers Act of 1940, commonly referred to as the “Advertising Rule.” This presentation offered a detailed review of the advertising deficiencies identified in the September 2017 Risk Alert issued by the SEC’s Office of Compliance Inspections and Examinations, discussed how advisers can avoid these sorts of deficiencies in their own marketing materials and built on the topics discussed in our three-part advertising compliance series: “Ten Best Practices for a Fund Manager to Streamline Its Compliance Review” (Sep. 14, 2017); “Five High-Risk Areas for a Fund Manager to Focus on When Reviewing Marketing Materials” (Sep. 21, 2017); and “Six Methods for a Fund Manager to Test Its Advertising Review Procedures” (Sep. 28, 2017). The webinar was moderated by Kara Bingham, Senior Editor of the Hedge Fund Law Report, and featured Christine M. Lombardo, partner at Morgan Lewis; Richard F. Kerr, partner at K&L Gates; and Todd Kaplan, founder and principal of Cloudbreak Compliance Group.
Nov. 9, 2021
Problems the SEC Looks for in Private Fund Exams, Recent Trends in Examination Techniques and Tips for Addressing Deficiencies
Nov. 9, 2021
Preparing for LIBOR Transition: What the Year‑End Deadline Means for PE Sponsors With Subscription Facilities (Part One of Two)
Nov. 30, 2021
Placement Agents’ Evolving Role in PE Fundraising and Potential Compliance Issues Sponsors Must Consider (Part One of Two)
Nov. 16, 2021
Preparing for LIBOR Transition: Remediation Terms Managers Should Incorporate Into Their Existing Subscription Facilities (Part Two of Two)
Nov. 2, 2021
Launching a Secondaries Platform: Unique Aspects of Fund Structuring and Information Sharing Issues (Part Two of Two)