Troutman Pepper helps U.S. and international funds and their sponsors, managers, advisers, and investors define and achieve their business goals. Our attorneys have represented hundreds of pooled investment vehicles, including committed capital funds, permanent capital/evergreen funds, independent sponsors, and others — experience that we bring to bear in the dynamic and ever-evolving arena of investment structuring and regulation.
Our team delivers focused insights and advice based on regulatory, industry, and private practice experience. Our attorneys include veterans of the asset management industry, the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Department of Justice (DOJ), and other regulatory agencies. Our full-service practice addresses all issues that arise in a fund’s life cycle. Individuals and organizations often call on our firm for comprehensive guidance on achieving their business goals and strategies, or to provide insights or second opinions.
Our clients are primarily sponsors, managers, and advisers. We also have a strong focus on investor-side engagements, representing renowned gatekeepers, family offices, and strategic corporate investors in numerous investments into funds ranging from multibillion dollars under management to small funds. This combination gives us a distinguishing vantage on the market. Our deep market knowledge is reflected in our frequent speaking engagements at industry conferences around the U.S., thought leadership pieces, and in-depth industry surveys. For example, in 2014, 2016, and 2018, Julie Corelli spearheaded surveys published by PFM, in which fund managers shared how they deal with fees and expenses. In 2015, the firm and MergerMarket partnered to take a close look at the co-investment environment. Collectively, these surveys offer unique insight into how fund CFOs and CCOs approach ordinary and extraordinary fees and expenses that occur in the life of a private equity fund. An update to the survey was released by Private Funds CFO in November 2020.
Our clients include:
At the outset of the process for forming a private fund of any kind, we seek to understand and align with our clients’ goals and expectations; the expected evolution of the fund’s structure; the fund’s investment strategy; and the fund’s likely investor complement. We provide practical advice on strategies for crafting the fund’s economic and management terms; the fund’s structure; the structure of the general partner and management company; regulatory compliance; and contractual arrangements. Our experience with a wide variety of fund types helps us craft the right terms for the managers’ goals and their unique approach to the market, whether that is to go “straight up the fairway,” or a hybrid structure to address the pain points in the industry that investors have experienced and seek to avoid.
We have counseled emerging managers on the design and launch of numerous private equity and growth equity platforms, credit funds, venture funds, real estate funds and those that pursue other strategies. We have also counseled managers on second, third and later funds, and advised on how to adapt their later funds to the changing investment environment as terms and conditions evolve over time. Many of our funds group attorneys have tax backgrounds and/or deal experience in the private equity, growth equity, venture, and financing space, enabling us to align, efficiently and knowledgably, the fund’s terms with the investors’ economic expectations and with the terms that will facilitate the smooth intersection of investor interest, fund terms, and deal structures likely to be used as capital is deployed into investments. Our representation of several institutional investors also gives us unique insights into the market, and how other managers address and push on fund terms and conditions for their own unique situations.
We counsel on fund management and operational issues, including counseling on treatment of costs as fund expenses or management company expenses, and ongoing regulatory matters; the structure, constitution, use, and compensation of advisory boards; how to achieve and maintain strong investor relations through information reporting and transparency while protecting the firm; and portfolio company management and governance.
Our finance attorneys work closely with the fund formation primary teams to put in place subscription facilities adapted to the particular fund terms and conditions. These may include features that allow use of leverage to smooth out the “J” curve, stabilize cash flows used for expenses, consummate investments, and/or support portfolio company guarantees. For our class-based investment partnerships, such credit facilities often include accordion features that streamline the lending process to new classes for their related investments and expenses. We represent funds that are borrowers under subscription lines of credit, as well as lenders (conventional and alternative), and thus have a marketplace vantage that assists our clients in structuring arrangements most suitable to them.
From emerging managers launching their first funds to institutional managers responsible for multibillion-dollar hedge fund platforms, we advise all types of hedge fund clients. This includes funds that invest globally in virtually any financial asset that can be readily traded as well as clients that invest in illiquid assets.
Our team advises clients on forming and operating private equity and hedge funds that invest in other funds — commonly known as “funds of funds.” We handle special structuring and flow-through issues, ratcheting carried interests and preferred returns, fee-stacking, confidentiality and transparency goals and problems, redemption and withdrawal, transfer and reinvestment rights, and custody and compliance issues. Our depth of experience with fund terms allows us to advise clients on the substantive terms of their investment transactions, and whether such terms are in line with current market terms.
We represent funds on both sides of secondary transactions, analyzing exposure to potential liabilities, negotiating the terms of sale, and negotiating the terms of consents of fund managers, lenders, and others. When we represent the buyer of a portfolio of interests, we also examine the underlying portfolio to assess potential tax liabilities and reporting exposures to the buyer’s mix of investors.
Our attorneys help clients plan successor funds and reconcile fiduciary responsibilities to limited partners and other principals within the general partner with management resources and responsibilities. We also help clients in conflict situations, such as when two affiliated funds invest in (or lend to) the same company or a successor fund invests in a prior fund’s portfolio company.
We advise fund managers and advisers, including general partners and investment managers, on the spectrum of business matters that arise including tax issues, applicable regulatory frameworks, defining and documenting governance standards and mechanisms, and issues ranging from compensation of principals to non-compete covenants, including using vesting and forfeiture restrictions to achieve succession and retention objectives. We help our clients devise carry/promote plans which align with their succession and retention goals. Our goal is to guide our fund manager clients on succession planning to avoid unexpected disruptions to fund operations.
We work closely with the firm’s securities enforcement litigators to counsel and defend fund, advisory and broker/dealer, Commodity Pool Operator (CPO) and Commodity Trading Advisor (CTA) clients at every stage of matters involving government oversight, including routine examinations, deficiency responses, investigations and litigation. We prioritize proactive communication with regulators and evaluate all options to protect reputational harm and other risks.
We are adept in helping clients establish investment vehicles that enable employees to participate through investment and profit sharing in the fund and/or its carried interest. In long-term and permanent capital vehicles, the long-term nature of these poses specific friction with the short-term nature of employment for younger generations. We embrace the need for timely reward in our employee participation entities by advising on an array of options designed to incentivize value growth, reward strong fund performance, and facilitate retention in a way that supports and solidifies firm culture.
We help clients develop bespoke, longer-lived, or perpetual investment vehicles that are tailored to assets suitable for an evergreen strategy or a business strategy suitable for patient capital. We help our clients embrace the evergreen nature of permanent or patient capital, advising clients on liquidity features for investors and carry realization features for managers, ingress and egress mechanisms for investors, and other terms, all tailored to the fund’s targeted needs.
Private Equity and Debt Funds
Venture Capital Funds
Real Estate-Related Funds
We have deep experience assisting sponsors with structuring and forming real estate funds. Representative non-REIT matters include:
Hedge Funds
Funds of Funds
Permanent Capital and Evergreen Vehicles
Employee Participation Vehicles
Press Coverage
06.24.24
The Death of the Private Funds Rule – And the Aftermath (Part 4)
Press Coverage
06.12.24
SEC Has Limited Options to Save Private Funds Rule: Compliance Pros
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Investment Management Update - Q1 2024
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Investment Management Update - Q4 2023
Articles + Publications
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Amendments and Clarifications to the Small Business Investment Company Investment Diversification and Growth Rules