ICLG The International Comparative Legal Guide to: Alternative Investment Funds 2018 6th Edition A practical cross-border insight into Alternative Investment Funds work Published by Global Legal Group, with contributions from: 5Lex Lenz & Staehelin Advokátní kancelář KF Legal, s.r.o. Maples and Calder Attorneys-at-Law Trust McCarthy Tétrault LLP Bonn & Schmitt Mori Hamada & Matsumoto Brodies LLP Paul, Weiss, Rifkind, Wharton & Garrison LLP Cadwalader, Wickersham & Taft LLP PricewaterhouseCoopers Ltd Cases & Lacambra Ropes & Gray LLP Colin Ng & Partners LLP Skadden, Arps, Slate, Meagher & Flom LLP Davis Polk & Wardwell LLP and Affiliates Dillon Eustace Taylors (in Association with Walkers) Dubiński Jeleński Masiarz i Wspólnicy sp.k. Travers Smith LLP FenXun Partners Vieira de Almeida Ferraiuoli LLC Flick Gocke Schaumburg Vivien Teu & Co LLP Harvest Advokatbyrå AB Webber Wentzel Lacourte Raquin Tatar Wikborg Rein Advokatfirma AS The International Comparative Legal Guide to: Alternative Investment Funds 2018 General Chapters: 1 A Game of Two Halves: Haves and Have-Nots in Alternative Investment Funds – Stephen G. Sims & Greg Norman, Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates 1 2 The Global Subscription Credit Facility and Fund Finance Markets – Key Trends and Forecasts – Michael C. Mascia & Wesley A. Misson, Cadwalader, Wickersham & Taft LLP 4 Contributing Editor 3 Adviser Exams: Mitigating Enforcement Risks – Leor Landa & James H. R. Windels, Stephen G. Sims, Skadden, Davis Polk & Wardwell LLP 7 Arps, Slate, Meagher & Flom LLP and Affiliates 4 Private Equity’s Seesaw: Changing Dynamics in Fundraising Terms – Marco V. Masotti & Lindsey L. Wiersma, Paul, Weiss, Rifkind, Wharton & Garrison LLP 14 Sales Director Florjan Osmani 5 Financing European Commercial Real Estate Debt Funds – Alternatives and Considerations – Account Director Partha S. Pal, Ropes & Gray LLP 18 Oliver Smith 6 Bringing Foreign Investment Funds into Japan – Yasuzo Takeno & Fumiharu Hiromoto, Sales Support Manager Mori Hamada & Matsumoto 21 Toni Hayward Sub Editor Country Question and Answer Chapters: Hollie Parker 7 Andorra Cases & Lacambra: Miguel Cases & Marc Ambrós 26 Senior Editors 8 Angola Vieira de Almeida: Pedro Simões Coelho & Carlos Filipe Couto 32 Suzie Levy Caroline Collingwood 9 Bermuda Taylors (in Association with Walkers): Jonathan Betts 39 CEO 10 British Virgin Islands Maples and Calder: Richard May & Heidi de Vries 48 Dror Levy 11 Canada McCarthy Tétrault LLP: Sean D. Sadler & Nigel P.J. Johnston 56 Group Consulting Editor 12 Cayman Islands Maples and Calder: Grant Dixon & Andrew Keast 64 Alan Falach 13 China FenXun Partners: Sue Liu 71 Publisher Rory Smith 14 Cyprus PricewaterhouseCoopers Ltd: Andreas Yiasemides & Constantinos A. Constantinou 77 Published by Global Legal Group Ltd. 15 Czech Republic Advokátní kancelář KF Legal, s.r.o.: Mgr. Jakub Joska 86 59 Tanner Street London SE1 3PL, UK 16 England & Wales Travers Smith LLP: Jeremy Elmore & Emily Clark 91 Tel: +44 20 7367 0720 17 Finland Attorneys-at-Law Trust: Mika J. Lehtimäki 102 Fax: +44 20 7407 5255 Email: [email protected] 18 France Lacourte Raquin Tatar: Damien Luqué & Martin Jarrige de la Sizeranne 108 URL: www.glgroup.co.uk 19 Germany Flick Gocke Schaumburg: Christian Schatz 117 GLG Cover Design F&F Studio Design 20 Hong Kong Vivien Teu & Co LLP: Vivien Teu & Sarah He 122 GLG Cover Image Source 21 Ireland Dillon Eustace: Brian Kelliher & Sean Murray 132 iStockphoto 22 Italy 5Lex: Francesco Di Carlo & Camilla Fornasaro 142 Printed by 23 Luxembourg Bonn & Schmitt: Jeannette Vaude-Perrin & Amélie Thévenart 152 Ashford Colour Press Ltd July 2018 24 Mozambique Vieira de Almeida: Pedro Simões Coelho & Carlos Filipe Couto 160 Copyright © 2018 25 Norway Wikborg Rein Advokatfirma AS: Christoffer Bergene & Global Legal Group Ltd. Jens Fredrik Bøen 166 All rights reserved No photocopying 26 Poland Dubiński Jeleński Masiarz i Wspólnicy sp.k.: Tomasz Masiarz & Rafał Lidke 173 ISBN 978-1-912509-23-2 27 Portugal Vieira de Almeida: Pedro Simões Coelho & Inês Moreira dos Santos 180 ISSN 2051-9613 28 Puerto Rico Ferraiuoli LLC: Yarot T. Lafontaine-Torres & Alexis R. González-Pagani 190 Strategic Partners 29 Scotland Brodies LLP: Andrew Akintewe & Karen Fountain 201 30 Singapore Colin Ng & Partners LLP: Amit R. Dhume & Abel Ho 209 31 South Africa Webber Wentzel: Nicole Paige 217 32 Spain Cases & Lacambra: Miguel Cases & Toni Barios 223 33 Sweden Harvest Advokatbyrå AB: Gustav Sälgström & Emelie Persson 231 34 Switzerland Lenz & Staehelin: Dr. François Rayroux & Dr. Patrick Schleiffer 237 35 USA Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates: Heather Cruz & Anna Rips 245 Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720 Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. WWW.ICLG.COM Chapter 1 A Game of Two Halves: Haves and Have-Nots in Stephen G. Sims Alternative Investment Funds Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Greg Norman With the football World Cup kicking off in Russia this summer, we biggest disruption for private equity in the future [will be] when can expect to hear various commentators telling us that the beautiful investors will only invest money if the manager takes no fee on game is “a game of two halves”. At the same time, the world of committed capital and you have lower carry”. However, he added: Alternative Investment Funds shows stark contrasts and divisions. “If you are at the top of the heap in any industry you are reluctant Some managers and investors look poised to capitalise on the to do anything to change your business model”. That sums up the environment, while others struggle. difference nicely, and also the difficulty for investor industry bodies such as ILPA (the Institutional Limited Partners Association) in staying relevant at a time when investors are struggling to access The Importance of Size the best funds. ILPA’s answer appears to be to focus primarily on educating investors and policymakers and on driving best News that Blackstone’s real estate arm has added over €40 billion of practice and standardisation in reporting and other areas such as assets under management to €184 billion, topping the list of global the production of model subscription agreements to drive down real estate managers for the second year running, will not surprise friction costs of investing, and ensure that investors are equipped i many readers. Stepping back, what is staggering is the ease with to compare fund managers and focus less on driving change in the which the larger fund managers across the illiquid alternatives space commercial terms of funds. are able to raise capital and the terms on which they are able to do so. The last few years have seen the biggest and best managers raise record-breaking funds in ever shortening time frames. Perhaps Regulation: The Direction of Travel more significantly, many of these have been able to do so while improving the economics and other terms in their favour. Examples A lawyer in the alternatives space recently bemoaned the increasing of improved economics include high-profile managers removing tide of regulation, remarking that he chose to specialise in alternative the requirement to pay a hurdle or preferred return before receiving funds to get away from all the regulation. Regulation has, however, carried interest or performance fees, or increasing the management caught up with him and with all of us. In the United States, few fees payable after the investment period, without there being an fund managers were required to register with the SEC before obvious justification for the change. Other economic changes, 2010, and the increase in regulation has been felt mainly through such as higher caps on organisational expenses, can be justified by the increased supervisory activities of the SEC, which has taken reference to the enhanced regulatory regimes imposed on managers enforcement action against a number of private fund managers for of alternative investment funds. Non-economic changes can perceived failings. When the SEC announced that it was looking include giving greater discretion to managers to allocate investment into compliance with offering and organisational documents opportunities between different funds and managed accounts, by managers, some investors and their counsel were bemused, or reducing key man obligations to specific funds, and reflect the expecting that the SEC was unlikely to uncover instances of non- growth of diversified managers as contrasted to the single product compliance where the investors themselves had failed to do so. But managers that were around when many of the limited partnership the regulator’s focus on disclosure and compliance with fiduciary agreements governing funds were originally crafted, as well as duties when faced with conflicts of interests, rather than simply investors’ reliance on increased oversight by regulators to ensure compliance with the strict terms of legal agreements, has resulted that managers do the right thing. Others, such as watering down in actions around failure to disclose unusual fee arrangements such managers’ liability, seem to be more a case of taking advantage of as accelerated monitoring fees, and unequal treatment of investors a buoyant fundraising market summarised by one manager as “if or allocation of investment opportunities and expenses between you can walk in a straight line at the moment, then you’ll be able to different funds managed by investors. raise a fund”. Across the Atlantic, European regulation has been characterised by Meanwhile, less well established managers face a series of obstacles much more prescriptive requirements. These had their origins in the on the fundraising trail.