Blayne Grady Quoted on Best Practices for PE Fund Managers and Investor JVs

Akin Gump investment management partner Blayne Grady has been quoted in Hedge Fund Legal & Compliance Digest for its article series “Best Practices for Private Equity Fund Managers Entering Into Joint Ventures With Investors,” on large institutional investors’ joint ventures with private equity managers in order to manage portfolio companies or access specific deals or markets.

In part one of the series, Grady noted that joint ventures are attractive to large institutional investors in order to have independent of opportunities, saying, “While the investment teams at institutional investors may be more sophisticated, I think the deal flow and deal access is still missing and what they are partnering with the managers to get. The teams can assess and evaluate opportunities, but they aren’t having potential deals presented to them, and it’s the managers using their networks to seek out potential investment opportunities.”

He also noted that access to capital is important for managers: “The manager gets an identified source of capital with pre-agreed terms, including the economics of the deal and the approval process. It allows for faster deal execution with capital they know is interested. That’s a huge benefit to managers.”

Grady continued by advising managers to have explicit allocation policies for JVs with investors, as a notable disadvantage for them is that deal flow is siphoned from other vehicles. He said that managers will want to set up joint ventures in a strategy not covered by existing funds or set up prior to any extant fund with a similar strategy.

He added that managers may need to anticipate questions from other large investors as to why they were not included in the JV.

In the series’ second installment, Grady discusses the proper structure for joint venture vehicles, noting that they “are typically owned exclusively by large, sophisticated investors that satisfy certain statutory ‘qualified purchaser’ thresholds.” The joint ventures, he continued, “are usually contract deals or can also be an LLC.”Grady also talked about registration obligations stemming from joint ventures, suggesting that managers should consider “whether the arrangement with the investor rises to the level of actively managing capital for purposes of having assets under management and triggering the registration threshold.”

As for disclosure requirements, Grady said if the JV is a vehicle, “it could constitute a private fund or account that needs to be disclosed on the Form ADV or Form PF. Typically, the joint ventures are structured so the entity itself is not regulated for purposes of the Investment Company Act.”