Side letters have gone through a massive and largely unspoken transition over the last four to five years. From a position where a few investors in a closing might have quite short side letters dealing with niche issues we are now at a point where it is not uncommon to see the vast majority of investors in a closing have the benefit of negotiated side letter protections in side letters that can extend to upwards of 20-30 pages.
This week, the U.S. Court of Appeals for the Fifth Circuit vacated the private fund advisor rules adopted by the United States Securities Exchange Commission. The Final Rule imposed significant regulatory requirements on advisors to private equity funds, hedge funds and other private funds. It represented a significant expansion of the SEC’s power to regulate private fund advisers and investors and, according to the decision, compliance with the Final Rule would cost the private funds market $5.4 billion and require millions of hours of employee time.
The Diversity in Fund Finance Committee is excited to invite you to the Second Annual Summer Soiree: Suits & Soju!
Register now to save your spot for an evening of networking with your fellow industry participants. The event includes a panel discussion spanning industry viewpoints, all while enjoying light beverages and bites.
Delaware remains the most popular jurisdiction for the domestic formation of private equity and venture capital funds as either a limited partnership or limited liability company. In fact, 54.8% of the deals closed by Cadwalader in 2023 had a Delaware component. A myriad of reasons could be cited as the basis for this fact, but lenders are generally fine with this choice based on specific protections a lender is afforded under Delaware statutory law related to the obligations of an investor to a Fund. In particular, Title 6, Section 17-502(a)(1) of the Delaware Code provides “Except as provided in the partnership agreement, a partner is obligated to the limited partnership to perform any promise to contribute cash or property or to perform services, even if that partner is unable to perform because of death, disability or any other reason.”
Even more important, an Investor’s obligation to honor its promise to make capital contributions expressly extends for the benefit of creditors and Delaware law provides a statutory basis for a lender to assert a reliance claim to avoid a financial loss.
Cadwalader partner Angie Batterson authored an article, “The Dynamics of Insurers as Lenders in the NAV Market,” which appeared in the May 2024 edition of Butterworth’s Journal of International Banking and Financial Law, a LexisNexis publication.
The article explores the factors attracting insurance companies to the NAV financing space and some typical deal terms. Read it here (subscription required).
The US Diversity in Fund Finance Committee of the Fund Finance Association held the latest event in their Boundary Breaker speaker series this week. The event, co-sponsored by Haynes Boone and Standard Chartered, was a great success with ~40 attendees to hear an insightful conversation with Henry Tang, Co-Founder of the Committee of 100, and Vicky Du, Global Head of Fund Finance at Standard Chartered Bank. Henry and Vicky discussed Henry’s long and storied career. Henry was one of the first Asian-Americans on Wall Street, and he spent time working across the largest Wall Street investment banks including Salomon Brothers, Lehman Brothers, and Prudential.
Cadwalader partners Samantha Hutchinson and Wes Misson co-authored “Fund Finance: Past, Present and Future,” which appeared as a chapter in the 2024 edition of Lending & Secured Finance, published on May 28.