Private Investment Funds

Katten’s Private Investment Funds Practice regularly represents institutions—including financial holding companies, insurance companies, public and private pension funds, endowments, foundations, family offices, foreign investors and funds-of-funds—and high net worth individuals that invest in private investment funds. We also represent both first-time and well-established sponsors in the formation of funds in a variety of sectors of the fund industry, including hedge funds, venture funds, LBO funds, mezzanine funds, real estate funds, commodity funds, futures funds, industry-specific funds and funds-of-funds.

Private investment funds have increased in significance and number in recent years and, notwithstanding recent market disruptions, the private investment fund industry continues to raise capital in excess of historic levels. Katten has been at the forefront of growth in this sector. Our experience with both sponsors and investors in fund formation efforts and in secondary market purchases and sales enables us to respond quickly in finding practical solutions that move deals forward. Our clients also value the firm’s entrepreneurial philosophy and approach, which yield savvy, pragmatic lawyers with focused industry experience and in-depth product knowledge.

We understand that each dollar spent on transaction costs is one less dollar available for fund sponsors and limited partners to invest. As a result, Katten is relentless in its pursuit of greater efficiency. Attorneys in the Private Investment Funds Practice apply an interdisciplinary approach in providing comprehensive legal services including regulatory, tax and ERISA counsel. Our depth of experience, combined with our commitment to efficiency, ensures that Katten’s fund formation clients receive high-quality legal services at a lower cost.

Sponsor Representation

Experienced lawyers who are well versed in and responsive to the dynamic capital-raising environment are integral to the success of a sponsor’s fund-raising effort and the ability of a fund to raise capital on favorable terms. Katten attorneys know the market for terms offered to investors in private investment funds, as well as the legal issues involved. By consistently representing both sponsors and investors, we bring useful insights on key deal terms and market trends to the table. Our extensive experience also allows us to provide these services cost-effectively and to be responsive to a sponsor’s needs.

Katten advises sponsors of private investment funds in connection with the myriad of legal issues and decisions they confront in organizing and running a fund, including:

• Size of the fund and capital contribution of the sponsor
• Minimum amount to close and the mechanics of multiple closings
• Use of a placement agent
• Asset management fees, including offsets for transaction, break-up and other fees
• Tax-advantaged management fee waivers
• The appropriate “carried interest” formula, including catch-up
• Governance provisions, including advisory and investment committees, “key man” provisions, “for cause” termination, “no fault” suspension and termination
• Length of the investment period and term of the fund
• Allocation of investment opportunities and other potential conflicts of interest
• General partner and limited partner clawbacks and guarantees
• Confidentiality issues and provisions, including Freedom of Information Act and other disclosure law issues
• Anti-money laundering laws and USA Patriot Act issues
• Investment Advisers Act and Investment Company Act exemptions and registrations
• Tax and ERISA advice and structuring
• Mid-term adjustments in fund provisions
• Side letters
• Offshore/non-U.S. issues, including master/feeder structures
• Arrangements among the principals of the sponsor, including the vesting of carried interests

We have extensive experience in negotiating the terms of private investment funds with and for institutional investors, including:

• Private pension funds
• Public pension funds
• University endowments
• Private foundations
• Foreign investors, including foreign pension funds
• Other institutions and funds-of-funds

As part of our representation of fund sponsors, we assist in structuring their internal organizations, whether with respect to a single fund or an entire family of funds. We help sponsors address the fundamental issues they face, such as internal splits of carried or promotional interests, performance fees and other fee income, liability protection, regulatory compliance, tax optimization, and employment and governance issues. We find approaches that are practical, economical and forward-looking that result in efficient operations and allow for future growth.

Unlike other large law firms, Katten represents sponsors of both large, institutionally based funds and smaller, entrepreneurial funds marketed primarily to high net worth individuals, including many first-time funds. Whether a sponsor is raising its fifth fund or launching a fund for the first time, we provide the same high level of attention. Our most senior fund formation attorneys counsel our clients directly and are intimately involved in all aspects of a client’s fund-raising process.

Limited Partner Representation

Katten regularly advises the institutional investors who supply the capital that makes private equity funds run. These clients invest in venture capital, leveraged buyout, mezzanine, opportunity, real estate, distressed, fund-of-funds, hedge funds, futures funds, commodities pools and industry-specific investment funds with individual commitments as large as $500 million. By representing numerous institutional investors in a wide variety of fund investments, our attorneys are able to see the market from multiple perspectives.

In counseling prospective investors in private investment funds, we seek to understand our clients’ organization-specific requirements and to apply our in-depth knowledge of private investment funds so they can optimize the terms of each investment. We work with our clients to help them understand the intricacies and implications of the terms of a particular fund and to prioritize their goals within the unique framework that each fund presents.

In addition, we help clients decide how to use their leverage in the challenging economic environment that institutional and individual investors face today. Together with our clients, we explore the issues and make sure that the structure and terms of the fund in which they invest will properly align the sponsor’s interests with their own.