Funds Focus | February 2020

Written on 13 Feb 2020

Welcome to the latest edition of our Funds Focus.

Four months on from its publication, the ILPA Model LPA has received mixed reviews. Will it set a new standard for limited partnership agreements, or do some of the more LP-friendly terms simply go too far for the sponsor community?

In January 2020, the FCA sounded the alarm on alternative investments, warning firms it would test them on the suitability of their products and their systems/controls. Our article highlights what is expected of firms across each of the FCA’s six supervisory priorities.

As responsible investment moves up the agenda for both investors and companies, the European Commission has placed ESG considerations at the heart of the financial system through its adoption of three new measures to regulate sustainable finance. We focus on the Disclosure Regulation and what this means for AIFMs, as well as the Investment Association’s ‘Responsible Investment Framework’, which proposes a new common language for responsible investment and provides clarity on the disclosure of sustainable indicators.

As the fund industry is also waking up to the positive impact of greater diversity and inclusion, with industry bodies and not-for-profit organisations showing their commitment to promoting change. In our article, we take a closer look at AIMA’s new diversity and inclusion guide.

As fund managers switch on to the variety of financing options available to them, and investors become more savvy in their negotiations, what will this mean for the expanding fund finance market? Our article looks at the key financing products available and how these are influencing the terms of limited partnership agreements.

Finally, we look at the nightmare scenario of inadvertently assuming liability for the actions of a target company. Our article is the first in a three-part series which looks at the different ways in which liability for the actions of one group company may end up being borne by other group companies, its managers or investors.

If you would like to discuss any of the topics we have covered, please contact one of the experts listed below.

Growth in fund finance set to continue in 2020

The fund finance industry continues to grow rapidly in both size and complexity with general partners and private fund sponsors across the full range of asset classes showing an ever increasing appreciation of the value of utilising financing in the management of their funds. Investors are also paying more attention to the capacity given to – and restrictions imposed on – managers to use leverage in fund documents.

In this article, we outline the key financing options available to managers and the ways in which their increasing use is influencing limited partnership agreement terms during the fundraising process.

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Watch out alternatives | The FCA is looking at you!

The Financial Conduct Authority (FCA) has written a Dear CEO letter outlining some of the risks of harm that alternative investment firms pose to their customers and the markets in which they operate. In doing so, the FCA has set out its regulatory expectations against six supervisory priorities.

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Model LPA | Just a conversation starter?

When the Model Limited Partnership Agreement was published by the Institutional Limited Partners Association in October last year, it was marketed as “setting a new standard” for alignment of interests between general partners and limited partners in the private equity industry.

This is music to the ears of both GPs and LPs, but the devil (as always) is in the detail. While many of the terms of the Model LPA are uncontroversial, others appear to depart significantly from current market standards for English partnership agreements.

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New AIFM disclosure requirements on ESG and sustainability

The EU is adopting a package of measures to regulate sustainable finance, as part of its drive to put ESG considerations at the heart of the financial system.

In this article, we concentrate on the Disclosure Regulation, which entered into force in December 2019 and which will integrate ESG considerations into the investment decision-making or advisory processes of AIFMs and UCITS management companies.

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Shining a light on responsible investment

In November 2019, the Investment Association published its Responsible Investment Framework, which aimed to categorise, define and harmonise common investment terms in order to bring “clarity and consistency” to the industry’s approach to Responsible Investment.

The framework separates out distinct components for a firm-level and a fund-level approach to responsible investing. These components are included in the new glossary and define terms such as ‘stewardship’, ‘ESG integration’, ‘exclusions’, ‘sustainability focus’, and ‘impact investing’.

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New diversity and inclusion guidance from AIMA

In November 2019, the Alternative Investment Management Association AIMA launched its new diversity and inclusion guide to the global hedge fund industry, titled “The Alternatives”. The paper is intended to reflect the heightened focus on diversity in the industry and lists 45 practical recommendations to enhance diversity and inclusion.

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Are parents to blame? Liability in mass tort claims

The issue of ‘liability creep’ is an important one for companies and their directors and shareholders across all sectors both from a regulatory and risk management perspective. Private equity investors, in particular, need to be wary of inadvertently assuming liability for the actions of target companies.

In this article we consider the risks of parent companies being liable for mass tort claims increasingly being brought against foreign subsidiaries.

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