Private Equity Law Report Quotes Dennis Pereira on Avoiding Conflicts of Interest in Captive Investing

The Private Equity Law Report has quoted Akin Gump investment management partner Dennis Pereira in the article “How Sponsors Can Structure and Document Captive Debt or Equity Investments to Reduce Inherent Conflicts (Part Two of Two).” The second in a two-part series, this article looks at how fund sponsors can reduce their investments, negotiating role and ongoing management of debt stakes in captively owned investments in order to avoid conflicts of interest.

There are certain precautions, the article says, that need to be included in fund documents and corresponding disclosures associated with the private credit and PE funds involved in captive investing. Key to the process, it says, is disclosing to investors in both the private equity and private credit funds that each may participate in captive investments, as well as the potential conflicts that may arise.

“Having those discussions beforehand can avoid needing to bother the LP advisory committee (LPAC) with something potentially innocuous that no one, standing from the 20,000‑foot level, would really be worried about,” said Pereira.

The article notes that fund managers are becoming more proactive when they know their strategies will include the option of captive investing. With that in mind, Pereira added, “Firms are updating the technology in newer PE funds to have a lot of the concepts almost preapproved, so they can avoid advisory board consent or any type of LP consent. Otherwise,” he continued, “in older funds where the technology is not as robust, there is a lot more discussion and ambiguity about whether a conflict needs to be approved at all or if it’s best to just secure LPAC approval for the avoidance of doubt.”

Pereira was also quoted in the first installment of this series, which summarized the risks of captive investing. To learn more, please click here.