DescriptionThe special deal in the current fundraising environment
Sonya M. Pauls, LL.B. — Attorney at Law and Partner Barrister (Lincolns Inn/England & Wales), Solicitor (England & Wales), Attorney at Law (New York) at SJ Berwin LLP, Munich and London
In the private equity sector, alternative investment models and "special deals" are increasingly being observed in parallel with or instead of traditional fund constructions. They are signs of an increasingly complex and creative industry.
The current fundraising environment is characterized by a strong dichotomy of the market - a blanket categorization as an "investor market" is simplistic and simply inaccurate. While managers with strong track records are in a negotiation situation that is often stronger than during the 2007 boom market, both economically and from a negotiation perspective, other managers are looking for alternative and creative ways to reach the target volume of the planned fund or to secure funding for investments (funding) on a single investment basis. Due to the increasing - even desired - globalization of the investor base, some of the most successful European fund managers are choosing alternative investment structures to allow sovereign wealth funds, certain MENA investors or even other strategically or economically interesting investors to invest. The complexity of the current fundraising market defines an arena that requires a deep, global understanding of the trends and also the players. Side cars, special deals, pledge funds and segregated accounts are just a few examples of the multi-faceted nature of the current private equity environment.
Alternatives to traditional funds
- Individual mandates with one or more managers (Segregated Account/ Separately managed Accounts)
Most fund managers (GP = General Partner) still see the traditional fund structure with a diversified investor base as the desired default investment vehicle. However, there are an increasing number of large investors who are turning away from traditional forms of investment in F0nds, preferring instead to enter into individual mandates with one or more managers. - These forms of investment often have an economic incentive effect. However, some of the more strategically motivated investors also use this close investment relationship to gain deeper insights into the respective market, deal flow or but also the investment methodology of the respective GP. Often, investors are then also granted certain positive or negative controls - the concrete form of design, despite some market trends, of course also depends on the respective investor and GP.
The special deal in the current fundraising environment