June 22, 2020

Willkie partners Anne Choe and Mark Proctor recently presented a comprehensive program on the features of pledge funds and associated pros and cons.

The Private Equity Law Report recently published the first of two articles on the value of the pledge fund model and related fund formation issues. The series is based on a comprehensive program recently presented by Willkie Asset Management partners Anne Choe and Mark Proctor entitled “Private Equity Pledge Funds: Structuring, Terms and Conditions, Operations, Complying With Investment Advisers Act.” In the underlying CLE webinar, which was presented by Strafford, Ms. Choe and Mr. Proctor covered features of pledge funds and the pros and cons of these industry funds compared to blind pool funds or the separately managed account model. The program also addressed where the pledge fund fits in the current regulatory landscape.

They also reviewed vital questions including:

1) What market factors have caused investors to look more closely at more direct investments?

2) What advantages do pledge funds present for investors?

3) How are sponsor management fees and carried interest structured for pledge funds?

4) How are pledge funds structured under the Investment Advisers Act?

Following the structure of the Willkie attorneys’ presentation, this first PELR article, entitled “Merits of the Pledge Fund Model and Attendant Fund Formation Issues to Consider,” highlights the basics of pledge funds; examines the pros and cons of the model compared to blind-pool and the deal-by-deal funds; and explores the various structural approaches and mechanics involved with pledge funds. It can be accessed here (subscription required). The second article will detail certain regulatory and legal issues facing pledge funds, as well as key terms and operational considerations.

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