Recently, while taking Professor David Wessels’ excellent Venture Capital and the Finance of Innovation, I was reminded of one of the fund terms that often ended up being carefully scrutinized and negotiated by limited partners: the recycling provision. I’ve seen various forms of recycling provisions in practically every post-2008 vintage private equity, real estate, infrastructure, and venture capital fund that I have seen in the six years that I worked with Partners Group’s fund-of-funds arm; I would go as far as to call them pretty much ubiquitous in the industry.…

It is now the second week of 2016. 2016. It seemed so far away, when I left the industry to begin my MBAat Wharton. I’ve recently had the pleasure of discussing the state of the private equity industry with a few industry participants whose opinions I respect. These discussions have crystalized a number of thoughts on the state of the private equity industry as we enter 2016.…

Many private equity, real estate, and infrastructure fund sponsors offer co-investment opportunities to limited partners in their funds. The practice of offering co-investment opportunities to limited partners has been an accepted part of the industry since well before I joined it in 2008.1The appetite for co-investments among limited partners—particularly certain large and sophisticated institutional investors with the resources to build in-house direct investment expertise—has grown significantly since the 2008 global financial crisis.…

The article notes that large institutional investors often negotiate for preferential treatment in respect of management fees, carried interest splits, co-investment rights, and advisory committee seats; either due to the absence of a MFNclause or a tiered MFNclause, these preferential rights are not available to smaller investors. The article suggests that this trend is a negative development, with quotes from various participants—portfolio managers and lawyers—relating to transparency or unequal economic terms.…

More pertinent, why should a fund sponsor care? The short answer, is “because prospective limited partners care”. A fund’s tax structuring is often the subject of fairly extensive due diligence and negotiation by prospective limited partners, and in extreme situations where the fund sponsor cannot accommodate a prospective investor’s tax structuring requirements can result in that investor declining to make an investment.…

In light of a few conversations that I have had with various people who are interested in this space, I thought it would be good to write a brief overview of the categories of investors that a fund sponsor will typically seek to be LPs in their fund. It will serve as a primer to some of the considerations—including some legal considerations arising from the Investment Advisers Act of 1940(the “AA”) and the Investment Company Act of 1940(the “ICA”)—that anyone involved in the industry ought to consider when dealing with fundraising for a PE/VCfund that is subject to U.…

There are two main types distribution waterfalls in use today: The deal-by-deal (“American”) waterfall The whole fund (“European”) waterfall As the informal nomenclature would suggest, the deal-by-deal waterfall is most commonly used by American private equity sponsors, while the whole fund waterfall is used most comonly used in Europe and Asia.…

Let’s look at each of these in turn. Fund Structure The most common form of business organization used by private equity funds in the United States and most other parts of the world is the limited partnership. In a limited partnership, at least one partner—called the general partner—is responsible for managing the business of the partnership, while the other partners—called limited partners—are merely investors with no responsibility for managing the business of the partnership.…