Dec. 10, 2019

ILPA Model LPA Seeks to Empower LPACs and Increase GP Accountability for Fiduciary Duties (Part One of Three)

PE investors often feel like they have little leverage to negotiate the terms of their fund commitments, but the Institutional Limited Partners Association (ILPA) is aiming to change that with its release of a model limited partnership agreement (Model LPA). Drafted by a task force composed of more than 20 attorneys from law firms, investors and asset managers (LPA Task Force), ILPA hopes the Model LPA will provide a starting point to empower limited partners (LPs) in future negotiations. The Model LPA is not without controversy, however, as it seeks to upend a balance of power that has traditionally favored general partners (GPs). To understand where the Model LPA fits relative to market norms and its potential impact on the PE industry, the Private Equity Law Report interviewed an ILPA representative, several LPA Task Force members and multiple attorneys representing GPs about the document. This first article in a three-part series examines the Model LPA’s provisions relating to a GP’s fiduciary duties and the scope of authority granted to the LP advisory committee. The second and third articles will discuss the Model LPA’s economic terms and its potential impact on negotiations in the PE market. For more on ILPA guidance, see “ILPA Makes Recommendations for LPs Participating in GP‑Led Secondary Fund Restructurings” (Jul. 9, 2019); and “How Managers May Address Increasing Demands of Limited Partners for Standardized Reporting of Fund Fees and Expenses” (Sep. 1, 2016).

Navigating the SEC’s Interpretation Regarding an Investment Adviser’s Standard of Conduct: Six Tools to Systematically Identify Conflicts of Interest (Part Two of Three)

The SEC’s Interpretation Regarding Standard of Conduct for Investment Advisers (Interpretation), which recently became effective, affirms that an adviser’s fiduciary duty comprises a duty of care and a duty of loyalty. Going forward, the Interpretation is expected to serve as a guide to private fund managers and their legal advisers on the SEC’s expectations regarding those duties. The Interpretation confirms that an adviser could meet its duty of loyalty by making full and fair disclosure to its clients of all material facts relating to the advisory relationship, including all conflicts of interest that might incline the adviser to render advice that was not disinterested. This three-part series examines the practical implications of the Interpretation for private fund managers. This second article outlines key tools that fund managers may employ to identify their conflicts of interest. The third article will address best practices for investment advisers to manage their conflicts of interest. The first article provided an overview of the Interpretation and explored six key takeaways for fund managers from the Interpretation. For more on conflicts of interest, see “Absence of Harm No Defense Against Conflicts of Interest: SEC Issues Lifetime Bar From Compliance Work to CCO” (Sep. 13, 2018); and “Conflicts Remain an Overarching Concern for the SEC’s Asset Management Unit” (Mar. 12, 2015).

Non‑Disclosure Provisions in Settlement Agreements in the Wake of #MeToo

The #MeToo movement first gained traction in October 2017 following high-profile sexual abuse allegations against movie producer Harvey Weinstein. In the months that followed, hundreds of thousands of people posted to social media using #MeToo, telling their own stories of sexual harassment and abuse. One area on which legislators focused in response was the use of non-disclosure provisions in confidential severance, separation and settlement agreements. In a guest article, Morgan Lewis partner Leni D. Battaglia discusses recent laws enacted in California, New Jersey and New York – where many private fund managers have offices and employees – that restrict the use of non-disclosure provisions in settlement and other agreements with employees. In addition, this article provides practical guidance on how fund managers can draft compliant non-disclosure provisions in those agreements. See “What Fund Managers Need to Know About the Legislative Response to #MeToo” (May 3, 2018); and our two-part series on #MeToo and the PE industry: “How Managers Can Mitigate Risk Through Portfolio Company Diligence” (Apr. 23, 2019); and “Common Mistakes, Potential Risks and the Movement’s Impact on the Deal Process” (Apr. 30, 2019).

Dechert and Mergermarket 2020 PE Outlook: Identifying Investment and Exit Strategy Trends (Part One of Two)

PE deal activity is thriving, and there are record levels of dry powder waiting for deployment, putting pressure on PE firms to diversify and think creatively about their investment strategies. Although the global deal environment has been favorable over the last decade, there are signs of a recession approaching, and the geopolitical environment is fraught with tensions arising from the upcoming U.S. elections; Brexit; and the trade conflict between the U.S. and China. Mergermarket, on behalf of Dechert, recently completed a survey that explores these issues and others that may affect the PE industry in 2020. The results of the survey are presented – along with Dechert’s views on trends and likely developments – in a recent report (Report). This first article in a two-part series summarizes the micro and macro trends identified in the Report, including sponsors’ haste to exit investments ahead of a potential recession. The second article will describe trends in how funds are being structured in light of macro PE trends, as well as the uptake of PE investing in different global regions. See our two-part series “Dechert Attorneys Consider Impact of the GDPR”: Part One (Feb. 21, 2019); and Part Two (Feb. 28, 2019). For additional Mergermarket research, see “Global Trends and Practices in Compliance Due Diligence” (Aug. 13, 2019).

Direct Lending Funds: Five Structures to Mitigate Tax Burdens for Various Investor Types (Part Two of Two)

Fund managers must balance competing tax and regulatory concerns when structuring direct lending funds for the benefit of different classes of U.S. and non‑U.S. investors. There is no one-size-fits-all solution to the demands of different investors, and to that end, a recent webinar hosted by Strafford CLE Webinars that featured Sadis & Goldberg partners Alex Gelinas, Steven Huttler and Daniel G. Viola discussed the advantages and disadvantages of several different structures used by managers for direct lending funds. This second article in a two-part series analyzes how different fund structures will affect the tax concerns of U.S. investors, U.S. tax-exempt investors and non‑U.S. investors. The first article provided the panelists’ thoughts on closed-end, open-end and hybrid structures for direct lending funds, as well as on regulatory compliance concerns. For more on private credit, see “ACA Panel Examines Compliance Issues Faced by Credit Managers” (Nov. 15, 2018); and “Ropes & Gray Survey and Forum Consider Credit Fund Structures, Leverage, Conflicts of Interest and Challenging Environment (Part Two of Two)” (Jul. 26, 2018).

Lauren King Is Newest Partner in Goodwin’s Private Investment Funds Practice

Goodwin announced that Lauren King has joined its private investment funds practice as a partner in the New York office. Focusing on the organization and operation of private investment funds, King represents secondary, buyout, real estate, special opportunity, hybrid, credit and venture capital funds. She also advises private fund managers on the full spectrum of corporate matters, including governance, upper-tier structuring, succession planning, marketing and limited partner transfers. See “PLI Panel Explores Approaches to GP Succession Planning” (Oct. 8, 2019).