We at The Capital Commitment blog have previously discussed several steps for fund managers and others to weather the storm brought by COVID-19. One of those steps is assessing the likelihood of a carried interest return obligation under a fund agreement’s general partner clawback provision (and planning for how to mitigate those obligations, if necessary). A recent article from our colleagues in Proskauer’s Private Funds group highlights the important role that general partner clawbacks play in ensuring the economic deal between a fund manager and the fund’s limited partners is protected, regardless of how market disruptions, such as those brought on by COVID-19, impact a fund’s portfolio.
Proskauer Private Investment Funds Group Releases 2019 Annual Review and Outlook
Proskauer’s Private Investment Funds Group recently released its 2019 Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Private Funds. This yearly publication provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge funds space, as well as certain recommended practices that advisers should consider when preparing for 2020.
Proposed Senate Bill Would Significantly Impact Certain Private Funds and Their Affiliates
Recently, a group of Congress members introduced into Congress Senate Bill 2155 named the Stop Wall Street Looting Act of 2019. Although unlikely to be enacted into law as drafted, this proposed legislation would directly and substantially affect a number of fundamental operational aspects of private equity funds and their affiliates.
Proskauer Private Investment Funds Group Releases 2018 Annual Review and Outlook
Proskauer’s Private Investment Funds Group today released its 2018 Annual Review and Outlook for Hedge Funds, Private Equity Funds and Other Private Funds. This yearly publication provides a summary of some of the significant changes and developments that occurred in the past year in the private equity and hedge
SEC Adopts Higher Net Worth Threshold for Qualified Clients under the Advisers Act
In an order dated June 14, 2016, the Securities and Exchange Commission (SEC) adopted its prior proposal to increase the net worth threshold for “qualified clients” under Rule 205-3 of the Investment Advisers Act of 1940 (the Advisers Act) from $2 million to $2.1 million. This adjustment is being made pursuant to a five-year indexing adjustment required by §205(e) of the Advisers Act.
Application of the Joint Proposed Incentive Compensation Rule to Investment Advisers
On May 16, 2016, six federal agencies issued a joint release inviting public comment on a proposed rule to prohibit or condition certain incentive-based compensation arrangements. This proposed rule was mandated by section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and is a revision of the proposed rule the agencies previously published in the Federal Register on April 14, 2011.
As one of the six agencies, the U.S. Securities and Exchange Commission (SEC), is seeking to apply the rule to covered institutions with average total consolidated assets greater than or equal to $1 billion that offer incentive-based compensation to covered persons. By its terms, the definition of “covered financial institution” in section 956 of Dodd-Frank includes any institution that meets the definition of “investment adviser” under the Investment Advisers Act of 1940, as amended (the Advisers Act), regardless of whether the institution is registered, or exempted or prohibited from registration, as an investment adviser under the Advisers Act.
SEC Proposes Higher Net Worth Threshold for Qualified Clients under the Advisers Act
On Wednesday, May 18, 2016, the U.S. Securities and Exchange Commission (SEC) proposed to increase the net worth threshold for qualified clients from $2 million to $2.1 million. This proposed adjustment is being made pursuant to a five-year indexing adjustment required by §205(e) of the Investment Advisers Act of 1940 (the Advisers Act), as amended by §418 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Investment advisers registered with the SEC are prohibited by §205(a)(1) of the Advisers Act from entering into, extending, or renewing any advisory contract which provides for compensation to the investment adviser on the basis of a share of capital gains upon or capital appreciation of the funds or any portion of the funds of the client (e.g. a performance-based fee like carried interest). An exemption from this prohibition is provided by Rule 205-3 under the Advisers Act for clients that meet the definition of a qualified client found in the rule.