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Private Equity and Hedge Funds

Using Side Letters in Private Funds

November 29, 2017 by Alexander J. Davie

illustration of raising capital for a private fundAt some point while raising capital for a private fund, you will likely be asked by one or more potential investors to enter into a side letter. A side letter is an agreement between the fund and one particular investor to vary the terms of the limited partnership agreement with respect to that particular investor (almost always to the benefit of the investor).
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Filed Under: Private Equity and Hedge Funds Tagged With: PF Recent, Recent, Side Letter

3(c)(1) Funds vs. 3(c)(7) Funds

September 21, 2017 by Alexander J. Davie

3(c)(1) fund vs 3(c)(7) fundThe process of starting a new hedge fund or private equity fund involves choosing whether the fund will be structured as a “3(c)(1) fund” or a “3(c)(7) fund.” Many new fund managers are confused by the difference between the two, which refer to two different exemptions from the requirements imposed on “investment companies” under the Investment Company Act of 1940 (the “Act”). [Read more…]

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Filed Under: Private Equity and Hedge Funds Tagged With: 3(c)(1), 3(c)(7), Investment Company Act, PF Recent, Private Funds, Recent

Accredited Investors vs. Qualified Clients vs. Qualified Purchasers: Understanding Investor Qualifications

August 17, 2017 by Alexander J. Davie

image of a number of investors interesting in a productPrivate funds, such as hedge funds, private equity funds, and venture capital funds, are governed by a host of intersecting federal laws that impact who can invest in these fund, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Investment Company Act of 1940. This post provides prospective and existing private fund managers with a basic understanding of the primary categories of investors and why understanding these categories is essential in structuring and marketing a fund.

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Filed Under: Private Equity and Hedge Funds Tagged With: Accredited Investor, Hedge Fund, PF Recent, Private Equity Fund, Private Fund, Qualified Client, Qualified Purchaser, Recent, Venture Capital Fund

The Life Cycle of a Private Equity or Venture Capital Fund

June 29, 2017 by Alexander J. Davie

“illustration

Unlike most hedge funds, the investment holdings of private equity and venture capital funds typically are not liquid. Consequently, private equity and venture capital funds usually do not have any redemption rights and are organized to have a limited life cycle, often in the range of 7 to 15 years. During this life cycle, the fund manager will raise the capital for the fund, deploy that capital into investments, hold those investments, and then sell those investments and return the capital to the fund’s investors. This activity occurs over several distinct phases – the marketing period, the commitment period, and the post-commitment period. [Read more…]

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Filed Under: Private Equity and Hedge Funds Tagged With: Commitment Period, Investment Period, PF Recent, Private Equity Fund, Recent, Venture Capital Fund

Managing Conflicts of Interest in Private Equity and Venture Capital Funds

May 24, 2017 by Alexander J. Davie

illustration of private equity fundsSince the Securities and Exchange Commission has recently taken an increasingly closer look at the activities of private equity and venture capital fund managers, it is more important than ever for fund managers to understand when conflicts of interest are likely to arise and how to manage them properly. The SEC has expressed concern about conflicts of interest inherent in the private equity business model and has brought several enforcement actions against private equity fund managers in the last couple of years that mostly focus on direct and indirect compensation to managers or advisers that were not properly disclosed to the fund’s investors. Since the SEC takes the position that fund managers and advisers owe a fiduciary duty of loyalty to act in the fund’s best interest, fund managers must keep a close eye on potential conflicts of interest and employ best practices like consulting advisory committees whenever possible conflicts arise. [Read more…]

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Filed Under: Private Equity and Hedge Funds Tagged With: Conflicts of Interest, PF Recent, Private Equity, Private Funds, Recent, Venture Capital

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About the editor

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Strictly Business is a business law blog for entrepreneurs, startups, venture capital, and the private fund industry. Its editor is Alexander J. Davie, an attorney at Riggs Davie PLC based in Nashville, Tennessee. His practice focuses on corporate, securities, and business law. He works mainly with technology companies, including startups and emerging companies, and private equity, venture capital, and hedge funds.
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