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Tax and Business Related Considerations for Private Equity and Other Investment Funds Jonathan W. DePriest Chamberlain, Hrdlicka, White, Williams & Aughtry.

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Presentation on theme: "Tax and Business Related Considerations for Private Equity and Other Investment Funds Jonathan W. DePriest Chamberlain, Hrdlicka, White, Williams & Aughtry."— Presentation transcript:

1 Tax and Business Related Considerations for Private Equity and Other Investment Funds Jonathan W. DePriest Chamberlain, Hrdlicka, White, Williams & Aughtry Tax Executive Institute – Denver Chapter Federal Tax Day – December 10, 2013

2 Basic Structures PE Funds  Structure of the PE fund itself will depend upon the nature of its investors: –US domestic taxable –US domestic tax-exempt –Foreign (and from which jurisdictions)  AND the nature of its target (investee) portfolio companies –Foreign/Non-US –Domestic C Corporation –Domestic Partnership 2

3 Basic Structures for PE Funds 3 Partnership Principals/ Individuals Manager Partnership or S Corporation Management G.P. Target Investments Certain Non-U.S. Investors, and U.S. Investors Non-U.S. Investors Feeder Corporation (Non-U.S.) Fee for management services x% and carried interest

4 Basic Structures for PE Funds  Investor Tax Issues –Non-US Investors Avoid ECI Avoid FIRPTA Avoid filing US returns –Results often in using a foreign “blocker” usually organized in a tax haven jurisdiction –Parallel and co-investment structures often necessary 4

5 Basic Structures for PE Funds  Investor Tax Issues – Continued –US domestic taxable investors PE fund itself should not bear tax Pass-through of capital gains and losses Minimization of “phantom” income No reporting obligations or tax payment obligations in non-US jurisdictions (or if incurred, ability to use foreign tax credit) Avoid investing in CFCs (parallel foreign partnership structure for non-US investments) 5

6 Basic Structures for PE Funds  Investor Tax Issues – Continued –US domestic tax-exempt investors Avoid investments in operating partnerships (UBTI) Avoid unrelated debt-financed income (UDFI) Avoid fees for services (UBTI) Avoid certain insurance income 6

7 Basic Structures for PE Funds  Use of Swaps –Blocker companies interpose additional level of tax –Use of total return swap (TRS) Investor puts up cash collateral for a notional investment, and typically pays interest on the notional amount (sometimes net of collateral) Institutional counterparty will hedge with investment notional amount in PE fund Desire for full collateralization risks recharacterization 7

8 Basic Structures for PE Funds  Use of Swaps – Continued –Industry Director Directive (IDD) on use of TRS by foreign investors Avoids 30% withholding tax Likely too risky –Use of TRS by US TEIs Fairly common for private funds of MLPs Applicable to PE funds 8

9 Basic Structures for PE Funds  Management Fees and Carried Interests –Limited partnership to receive management fees – 1% LLC general partner subject to self- employment tax, limited partnership exception under Section 1402(a)(13) for LP share –Investment entity to invest the manager’s capital commitment and receive carried interest, exceptions for self-employment tax under Section 1402(a)(2) and (3) 9

10 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Corporate is more traditional, and frankly presents fewer issues –Investment by PE Fund in US domestic C corporation often takes the form of preferred stock –Possible combination with debt 10

11 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Typical features of Preferred Stock –Dividends –Liquidation Preference –Redemption Rights –Conversion rights and related anti-dilution protections 11

12 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Preferred Stock Dividends –Cash –Payment-in-kind (PIK) –Cumulative or Compounding When as and if declared by the Board will generally mean taxable upon receipt Automatic increase to the liquidation preference generally means taxable as they accrue 12

13 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Preferred Stock Dividends –Treatment of Preferred Stock as “tax common” by adding participating features Double dip – participation in dividends with common on as-if converted basis Participation on liquidation of the greater of liquidation preference or what holder would be entitled to receive on as-if converted basis 13

14 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Tax Common –Allows deferral of tax on PIK dividend –Avoids OID issues with redemption premium 14

15 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Traditional LTEIPs are more easily accomplished  Most are familiar with qualified stock options  PE views on vesting, forfeiture, Liquidity Events  Sale of company vs. IPO 15

16 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Partnership is more and more prevalent among operating companies and their owners, and from the private equity fund’s perspective presents conflicts among –U.S. domestic taxable investors –U.S. tax-exempt investors –Foreign investors 16

17 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Debt: Contingent Interest –Expressed as the greater of a fixed percentage interest rate or contingent interest –Contingent interest expressed as a percentage of adjusted gross revenue –Not unlike the NPI discussed below –UBIT Avoidance for TEIs 17

18 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  Preferred Equity in a Partnership –Allocations of taxable income to support preferred return upon liquidation (liquidation is in accordance with capital accounts) –Works well if income is growing –Capital accounts must be reflective of the relative rights and preferences upon liquidation –Getting through the waterfall 18

19 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds –Can lead to unexpected results and incentives Amortization of goodwill for acquisitions Smaller, one-off acquisitions –Sale of Personal Goodwill –Sale of Option –Risk of Recharacterization Payment for Non-Compete vs. Compensation Management vs. Investor Perspectives on Distributions PE investors must mark their portfolios and EBITDA will be critical 19

20 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds –Management LTEIP Structures Grants of Partnership Interests Options Plans Profits Interests Bonus plans Management Challenges Relating to All of the Above –Valuation, rebooking and phantom Income issues –Earnings hits for EBITDA – consider GAAP and tax –“Survivor” mentality for who is actually there for a Liquidity Event 20

21 Corporate vs. Partnership Structures for Target (Investee) Portfolio Companies held by PE Funds  State and Local Tax (SALT) Issues in Partnerships  Depending upon nature of investments, state tax filings could be triggered in multiple jurisdictions  Multiple flow-through portfolio companies in multiple jurisdictions  Even for de minimis amounts, penalties can be significant and lead you to file – the analysis must be undertaken 21

22 Real Assets: Oil & Gas Working Interests  Net Profits Interest Conveyance –Fund for Domestic Taxable Investors acquires a Working Interest –Such Fund conveys Net Profits Interest in the Working Interest to a parallel fund for TEIs to allow them to invest without generating UBTI –NPI must relate to real estate –TEI Fund lends taxable fund cash sufficient to finance tangible personal ppty 22

23 Real Assets: Oil & Gas Working Interests Accounting and Expense Allocation Issues Administrative Issues, including multiple closes and potential need for revaluation Use of NPI Calculation Agent Cannot add or pull out properties within an NPI conveyance after it is constituted –PLP Structure to Accommodate Financing for TEI Fund –Making Taxable and Tax-Exempt Funds Economically Equivalent 23

24 Real Assets: Oil & Gas Working Interests  Acquisitions & Financing Structure PLP Energy Fund GP, L.P. Energy Fund II-A, L.P. Taxable Investors Tax-Exempt Investors Energy Fund II-B, L.P. Lender 2 PLP L.P. Lender 1 Seller

25 Real Assets: Timber  TIMOs – Timber Investment Management Organization –Actual silvicultural management, timber cruises, etc. handled by the TIMO –Some infrastructure and staffing to evaluate HBU plays 25

26 Real Assets: Timber  631(a) vs. 631(b) cutting contracts –Wood supply agreements are one of two types, delivered log contracts under Section 631(a) of the Code—the owner harvests the timber and sells the cut logs—and pay ‐ as cut or lump sum contracts under Section 631(b) of the Code—the purchaser harvests the timber and pays for what has been cut and the owner has a “retained economic interest” in the timber, or the owner sells standing timber “outright” for a lump sum. 26

27 Real Assets: Timber –631(b) cutting contracts “pay as cut” or “lump sum” contracts produce income which is passive income under Section 512(b) and not UBTI in the hands of tax-exempt investors 27

28 Real Assets: Timber  HBU Sales – care to avoid treatment as a “dealer” to avoid generating UBTI and preserve LTCGs  Partnership agreement provisions confirming investment purpose  Use of SPVs for various holdings, tracking time and efforts for HBU sale to show minimal nature 28

29 Real Assets: Timber HBU Sales  Various factors considered, with frequency and substantiality of sales being most important  Nature and purpose of acquisition of ppty and duration of ownership  Nature and extent of taxpayer’s efforts to sell ppty  Number, extent, continuity and substantiality of the sales  Extent of subdividing, developing and advertising to increase sales  Use of business office for sales  Time and effort habitually devoted to sales 29

30 Real Assets: Other  Financial distress in municipalities  Focus on key infrastructure assets  Good match for large state pension funds –Airports –Railways –Toll Roads (mixed bag)  Professional management  Political challenges vs. economic reality 30

31 ERISA Considerations  VCOC- by taking an active role in the management of portfolio companies, PE funds may rely on an exemption from ERISA for “venture capital operating companies” –At least 50% of assets must be invested in “venture capital investments” –Must exercise “management rights” with respect to one or more of the operating companies in which it invests 31

32 ERISA Considerations  REOC –Real estate funds seek to rely on an exclusion from ERISA for “real estate operating companies” Must invest at least 50% of assets in real estate that is managed or developed and for which the fund has the right to substantially participate in the management or development activities Delegation is possible, so long as the fund has the right to terminate at will and actually supervises 32

33 ERISA Considerations  Section 408(b)(2) Regulation 2550.408b- 2(c) requiring covered Service Providers to make specified periodic disclosures to covered plans, mainly around compensation arrangements 33

34 ERISA Considerations  Significant Participation Test –A private fund is generally able to avoid ERISA’s application if it limits the level of investment by benefit plan investors to less than 25% of any class of the fund’s equity 34

35 ERISA Considerations  Significant Participation Test –Count all Benefit Plan Investors Employee Benefit Plans subject to ERISA Taft-Hartley (multi-employer) Plans Certain church plans IRAs – this is an easy one to miss! –Importantly, government plans (e.g., CALPERs, Colorado PERA) don’t count 35

36 ERISA Considerations  Significant Participation Test –Disregard Investments by manager and affiliates (they are not counted in the denominator to calculate the 25%) –Test on a Class Basis –Continuous monitoring required 36

37 ERISA Considerations  Assuming the private fund meets the significant participation test, relief can be found from the prohibited transactions relating to parties in interest through status as a QPAM or Qualified Professional Asset Manager. 37

38 ERISA Considerations  QPAM Status –Registered Investment Adviser; AND –Must have in excess of $85 mm in client AUM as of the last day of most recent FY; AND –Must have partner/shareholder equity in excess of $1 mm as of the most recent balance sheet prepared in accordance with GAAP 38

39 ERISA Considerations  Other Consequences of holding plan assets –Performance Fees –Use of Affiliated Brokers –Cross Trades –Principal Transactions –Custody –Employer Securities –Expenses 39

40 ERISA Considerations  Other consequences of holding plan assets continued –Expenses –Indemnification –Potential Plan Sponsor Liability –Co-Fiduciary Liability –Fidelity Bonding –Information Reporting 40

41 ERISA Considerations  Performance Fees permissible if –Fund manager is an RIA –Decision to hire Fund manager (i.e., to invest in the Fund) and to pay performance fee made by independent fiduciary of each benefit plan investor –Each benefit plan investor has total assets of at least $50 mm –Investor can withdraw from the Fund on reasonably short notice 41

42 ERISA Considerations  Performance Fees Continued –Arrangement complies with Advisers Act Rule 205-3 –Total fees paid do not exceed reasonable comp –Fund manager or affiliates do NOT act as market maker for securities transactions by Fund 42

43 ERISA Considerations  Performance Fees Continued –Perf Fee determined on annual performance, taking into account both realized and unrealized gains and losses, and where termination date is other than an anniversary date, net profit is determined from the beginning of the prior full year through termination date 43

44 ERISA Considerations  Performance Fees Continued –FINALLY, each benefit plan investor’s fiduciary represents that it fully understands the formula for calculating the perf fee and the risks associated with such arrangements  These criteria ONLY APPLY if the manager is an investment manager under ERISA, which it would not be if the significant participation test is satisfied. 44

45 Other Investment Fund Considerations for Partnerships: PTP Rules under 7704  Under IRC Section 7704, a partnership with more than 100 investors will be treated as a “publicly traded partnership” and taxed as a corporation if interests in the partnership are traded on an established securities market or a secondary market or the substantial equivalent of such a market. 45

46 Other Investment Fund Considerations for Partnerships: PTP Rules under 7704  Options? –Limit income to “qualifying income” Can be difficult to achieve 90% or more gross income as investment-type income Commodities don’t generally qualify Mezzanine financings don’t generally qualify –Limit withdrawals to redemption and repurchase safe harbor –Limit the number of investors to 100, per the private placement safe harbor 46

47 Other Investment Fund Considerations for Partnerships: PTP Rules under 7704  Resulting Practice: Strict Adherence to Private Placement Safe Harbor for Institutionally-Oriented Funds to support a “will” tax opinion –Use of Multiple Funds with 100 partners –Modifying Investment Strategies (particularly targeted volatility levels) among funds to distinguish them 47

48 Other Investment Fund Considerations for Partnerships: PTP Rules under 7704  For PE funds, strict policing of transfers and secondary transactions is needed to establish that the substantial equivalent of a secondary market does not exist, where the PE fund has more than 100 partners  Contrast with secondary managers with significant funds to deploy 48

49 Other Investment Fund Considerations for Partnerships: PTP Rules under 7704  Growing use of Commodities –90% Qualifying Income under 7704(d) – relevant if a partnership exceeds 100 partners and permits withdrawals more frequently than quarterly, outside of the redemption and repurchase safe harbor –Commodities-related income and gain is only Qualifying Income if “a principal activity” of the partnership is buying and selling commodities or options, futures or forwards with respect to commodities 49

50 Other Investment Fund Considerations for Partnerships: PTP Rules under 7704 –Scant Guidance as to what “a principal activity” means Examples from Percentage Holdings Dedicated Investment Team Members (those holding a Series 3 license) Number of Trades % of absolute value of gains and losses generated 50

51 Other Investment Fund Considerations for RICs  Regulated Investment Companies registered under the 1940 Act and electing to be taxed as RICs under Subchapter M.  90% of its gross income must be “Qualifying Income” under IRC Section 851(b)(2).  Asset diversification test  Year-end distribution obligation to distribute 90% of its realized taxable income for the taxable year 51

52 Other Investment Fund Considerations for RICs  Qualifying Income: 90% of a RIC’s gross income must be derived annually from the qualifying income sources enumerated in IRC Section 851(b)(2). –Notably absent from the list are income and gains on commodities –Commodities are not “securities” under 2(a)(36) of the 1940 Act 52

53 Other Investment Fund Considerations for RICs  Growing Use of Commodities for Liquid Alternative Strategies –Use of offshore subsidiary blockers CFC, Subpart F Income will be includable in gross income of the RIC So long as currently distributed, it will be Qualifying Income Limited to 25% of total asset value as of the end of each quarter of each tax year (includes assets held as collateral for derivative positions). 53

54 Other Investment Fund Considerations for RICs –Use of Commodity-Linked Notes (CLNs) RIC pays issuer par value upon purchase, and receives par value back from issuer at maturity, adjusted up or down by the product of (1) par value, (2) change in value of a commodity index, and (3) a leverage factor not to exceed three. Additional debt-like features –Interest payments –Early redemption feature for principal protection –No more than three year maturity Status as a “security” somewhat unclear, but it is the basis of status as qualifying income 54

55 Recently Proposed Rules for RICs holding MLPs  In recent years, MLPs have grown in popularity as an investment because of their yield. 55

56 Recently Proposed Rules for RICs holding MLPs  Closed-end Funds and Open-End Funds have been launched to invest a significant portion of their portfolios in MLPs. Many of these funds are structured as RICs; some are structured as C corporations. 56

57 Recently Proposed Rules for RICs holding MLPs  For those that are RICs, under Section 851(b)(3)(B), to qualify as a RIC, a fund must have not more than 25% of its total assets in qualified publicly traded partnerships (as defined in Section 851(h)). This is part of the “asset diversification test.” 57

58 Recently Proposed Rules for RICs holding MLPs  Some industry participants structured as RICs used a subsidiary C corporation to increase exposure to MLPs above the 25%. 58

59 Recently Proposed Rules for RICs holding MLPs  On August 2, 2013, the Service proposed regulations under Section 851(c) regarding the definition of a “controlled group” for purposes of the asset diversification test, to provide a “look through” for the investments of subsidiary C corporations. 59

60 Recently Proposed Rules for RICs holding MLPs  Public hearing scheduled for December 9, 2013. 60

61 Side Letter Practice Among Institutional Investors  Requirement for Legal Opinions  Delaware law corporate opinion covering due authorization and enforceability of the side letter  Rubber hits the road on fiduciary issues  Tax opinion as to partnership status  Rubber hits the road on 7704 PTP safe harbors  FIN 48 interplay on tax positions taken at fund level 61

62 Side Letter Practice Among Institutional Investors  Transparency into fund portfolio –More sophisticated risk management protocols require real time information –Issues with other investors –Provide all investors with same information –Use of aggregation services 62

63 Side Letter Practice Among Institutional Investors  Accelerated or Enhanced Liquidity/Withdrawal Rights  Issues for other investors: the GP’s fiduciary responsibilities  If registered under the Advisers Act, the GP has additional fiduciary obligations 63

64 Side Letter Practice Among Institutional Investors  Most Favored Nation clauses (MFNs)  Regulatory risk – implement a compliance policy and appoint someone responsible for overseeing MFN compliance  Carve-outs  Founders, manager and affiliates and employees  By dollar amount invested  By regulatory conditions  Provide summary with identifying information omitted, to protect privacy  Take the bitter with the sweet – no cherry-picking! 64

65 Side Letter Practice Among Institutional Investors  Other Provisions:  Non-US Withholding Taxes and Tax Filings  Listed Transactions and Prohibited Reportable Transactions  Notice Provisions (disparate informational concerns)  Key Person Provisions (disparate informational concerns)  Indemnification Limitations (esp. gov’t and ERISA plans)  Jurisdictional issues (esp. gov’t plans)  Confidentiality/Public Records Issues 65

66 1940 Act Considerations  3(c)(1) Funds – Not more than 100 beneficial owners and not making or presently proposing to make a public offering (all accredited investors under Reg D is the norm)  Non-integration for taxable and tax-exempt parallel funds  Look-through for owners of 10% or more of a 3(c)(1) fund’s voting securities  Look-through for entities “formed for the purpose of” investing in a 3(c)(1) fund, 40% test  General solicitation under new Rule 506(d) passed under the JOBS Act permissible 66

67 1940 Act Considerations  3(c)(7) Funds – up to 1999 record holders under 1934 Act –All investors must be “qualified purchasers” –QP status for individuals means $5 mm in investments –For entities, $25 mm in investments –Same private placement requirement as 3(c)(1) funds All accredited investor offerings are the norm 67

68 1933 Act Considerations  Per the above, all 1940 Act exemptions require an exemption from the registration requirements of the 1933 Act  Rule 506 of Regulation D  Federal Covered Security status under NSMIA  Blue Sky “notice” filings and fees –More aggressive state regulators 68

69 Investment Advisers Act of 1940 Considerations  Registration of the Manager –$100 mm AUM threshold for SEC registration generally –$150 mm AUM threshold for private fund advisers (exempt reporting adviser status) –State regulation  Performance Fees can only be charged to “Qualified Clients” 69

70 Investment Advisers Act of 1940 Considerations  Exemption for Advisers to Venture Capital Funds –80% qualifying investments in equity securities issued by qualifying portfolio company Must be an operating company Does not incur leverage for fund’s investment Not a reporting or foreign traded company –Limitation on fund-level leverage – 15% Any such leverage is for a non-renewable term not longer than 120 days –No redemptions by investors –Venture capital strategy representation –Private fund status (not registered as an investment company or BDC) 70

71 Investment Advisers Act of 1940 Considerations  With regulatory burdens come opportunities… –Attracting institutional money 71

72 Commodity Exchange Act  Recent changes post-Dodd Frank eliminated Rule 4.13(a)(4), which was an exemption from CPO registration for pools offered to highly sophisticated investors  Rule 4.13(a)(3) exemption still available, but more limited, available to managers of private funds –Aggregate initial margin does not exceed 5% –Aggregate net notional exposure does not exceed 100% 72

73 Commodity Exchange Act  4.13(a)(3) – sales only to Qualified Eligible Persons (QPs automatically qualify)  Many managers implementing quantitative strategies must register as CPOs and CTAs 73

74 Broker/Dealer Registration Requirements under the 1934 Act for PE Fund Managers  1934 Act Section 15(a)(1) prohibits any person from effecting transactions in, or inducing or attempting to induce the purchase or sale of, any security, unless that person is registered as a broker  Section 3(a)(4)(2) defines a broker as any person engaged in the business of effecting transactions in securities for the account of others 74

75 Broker/Dealer Registration Requirements under the 1934 Act for PE Fund Managers  Key Factors –Participant in key parts of transaction –Prior experience in securities transactions –Disciplinary issues –Handling of funds or securities –TRANSACTION-BASED COMPENSATION 75

76 Broker/Dealer Registration Requirements under the 1934 Act for PE Fund Managers  David W. Blass, Chief Counsel, Division of Trading and Markets, SEC, Speech on April 5, 2013 to the ABA Trading and Markets Subcommittee: A Few Observations on the Private Funds Space. 76

77 Broker/Dealer Registration Requirements under the 1934 Act for PE Fund Managers  Very limited applicability of the issuer exemption in 1934 Act Rule 3a4-1. –Generally applicable to an operating company personnel of which only occasionally engage in securities sales (no more than once every 12 months) –Personnel must regularly perform substantial duties not related to sales of securities –No transaction-based compensation 77

78 Broker/Dealer Registration Requirements under the 1934 Act for PE Fund Managers  Transaction-based compensation is important, but…if issuer personnel are regularly engaged in broker/dealer activity, broker/dealer registration may be triggered  Continuous capital raising activities  Internal marketing personnel had better be registered reps of a broker/dealer  Private Placements: where is the broker/dealer? 78

79 Broker/Dealer Registration Requirements under the 1934 Act for PE Fund Managers  Compliance Point: How certain fees are booked  “commissions” and “sales charges” appearing on the G/L need to be paid to a broker/dealer  SEC specifically asks for accounting records in its examinations  Internal protocols to vet and document the status of payees as broker/dealers should be implemented  Payment to an unregistered broker/dealer blows the Blue Sky exemption, opens the issuer to rescission liability 79

80 Broker/Dealer Registration Requirements under the 1934 Act for PE Fund Managers  Other PE fund and manager activities  Investment banking or brokerage activities for PE fund portfolio companies  Fees charged for sales or financings executed for portfolio companies 80

81 Chamberlain Hrdlicka Financial Services Practice Areas  Asset Management. Chamberlain Hrdlicka’s asset management attorneys’ experience spans multiple industries and asset classes. We routinely advise our clients on regulatory aspects of fund management and investment advisory operations. Our asset management team provides legal services to a wide range of clients in the asset management industry including registered and unregistered investment advisers, broker-dealers, corporate entities with multiple subsidiaries, publicly offered closed-end funds and mutual funds, private investment funds, and asset and wealth management firms, trust companies as well as other organizations with various fiduciary responsibilities. Our practice includes the formation and representation of investment companies, sponsors, advisers and directors, including SEC and FINRA regulatory compliance matters; fund formation, distribution and marketing; fund board and governance matters; compliance manuals and testing; and corporate transactions involving asset management businesses, including mergers, acquisitions and joint ventures. 81

82 Chamberlain Hrdlicka Financial Services Practice Areas  Broker/Dealers  The attorneys at Chamberlain Hrdlicka routinely counsel broker-dealer clients on a broad range of legal issues: –Dodd-Frank and other financial institution regulatory reform –Regulatory, compliance and securities law matters relating to broker-dealers –Advise broker-dealers on the rules of the SEC, FINRA and other regulatory and self- regulatory organizations –Registration requirements, including with regard to unregistered affiliates of registered broker-dealers that wish to engage in securities-related activities  Our clients include a broad range of broker-dealers, as well as their non- broker-dealer subsidiaries and affiliates. We also serve small and mid-sized firms, and affiliates of insurance, commercial banking and other financial services companies. Chamberlain Hrdlicka also provides its broker-dealer clients with a full range of corporate, securities, M&A, tax and other advice in connection with their investment banking activities. 82

83 Chamberlain Hrdlicka Financial Services Practice Areas  ERISA/Benefit Plan Investors Review transactions with ERISA plan investors (401k plans, pension plans including Taft-Hartley plans, Keogh plans, IRAs, etc.) in pooled investment funds managed by private fund managers for compliance with applicable ERISA requirements including fiduciary responsibility, QPAM status, plan assets rule, prohibited transactions and exemptions therefrom. Advise on fund offering documents for provisions that address both ERISA plan investors and plan investors other than ERISA plan investors, such as US state and local government and foreign pension plans. 83

84 Chamberlain Hrdlicka Financial Services Practice Areas  Family Office The attorneys at Chamberlain Hrdlicka understand the nature of representing wealthy individuals and their families. Our Family Office attorneys are very knowledgeable in not only establishing, but sustaining a Family Office for future generations. We can offer our clients an array of services which include, but are not limited to, investment management regulation and compliance, income, estate and gift tax planning, business succession planning, as well as legal aspects of management of closely-held businesses through a Family Office. 84

85 Chamberlain Hrdlicka Financial Services Practice Areas  Financial Services Chamberlain Hrdlicka’s financial services team is equipped to handle the ever-changing landscape of the financial sector and help our clients reach their business objectives. Our sophisticated financial services practice includes work in many areas of the industry, including mergers and acquisitions, asset management, capital market activities, product development and compliance, federal and state securities and domestic and offshore company formation. Chamberlain Hrdlicka routinely counsels their clients on matters regarding regulatory initiatives and legislation, as well as privacy law compliance. 85

86 Chamberlain Hrdlicka Financial Services Practice Areas  Hedge Funds Chamberlain Hrdlicka understands sophisticated private managers need legal advisers with a level of knowledge and understanding of complex investment strategies that can support such sophistication. Our hedge fund attorneys have experience working with managers with many different fund styles, from single-strategy to multi-strategy hedge funds and funds of hedge funds. Chamberlain Hrdlicka assists clients throughout all stages of hedge fund development, providing counsel on the establishment and operation of hedge funds, including the preparation of fund formation documents and private placement memoranda. Chamberlain Hrdlicka’s hedge fund practice is dedicated to providing our clients with a partner to help assess and manage legal risk so they can focus on maximizing return. 86

87 Chamberlain Hrdlicka Financial Services Practice Areas  Investment Advisors Chamberlain Hrdlicka attorneys advise clients in all aspects of their investment advisory business, including both retail and institutional advisory businesses. We counsel our investment adviser clients on the formation and operation of many types of alternative investment vehicles, including hedge funds, fund-of-funds, venture capital and private equity funds, private real assets funds and other public and private pooled investment vehicles. We also advise our clients on the complex federal and state regulatory, legal and compliance issues affecting investment advisers and their affiliates, including pay-to-play rules and lobbyist registration compliance matters. 87

88 Chamberlain Hrdlicka Financial Services Practice Areas  Investment Management Chamberlain Hrdlicka’s investment management team provides a full range of legal, regulatory and advisory services including business formation, governance issues, transactions, registration, documentation and agreements, operational matters, and other corporate matters. We are able to advise our clients through each stage of investment maturation, assisting clients from fund formation and management to distribution arrangements with financial intermediaries. Our clients include mutual funds, closed-end funds, domestic and offshore private investment funds (including venture capital, private equity, and hedge funds), investment advisers, and broker-dealers. 88

89 Chamberlain Hrdlicka Financial Services Practice Areas  Private Equity Funds Chamberlain Hrdlicka’s private equity attorneys can advise clients throughout the life cycle of a private equity transaction, from formation, to investments and ultimately to exit. We have expertise and experience in sophisticated transactions including leveraged buyouts, management buyouts, spin-offs, venture capital financings, going-private transactions, and recapitalizations and dispositions, as well as cross-border and international transactions. 89

90 Chamberlain Hrdlicka Financial Services Practice Areas  Private Funds Chamberlain Hrdlicka’s Corporate, Securities & Finance practice group includes a team of attorneys who are well-versed in all legal and regulatory matters relevant to managing and investing in private funds. Our experience across many private fund structures, including private investment funds, hedge funds and private equity funds, enables us to assist clients in a wide scope of fund investment activities. We help our clients move forward with private fund activities, employing a cross-disciplinary approach that incorporates the firm’s greater Corporate, Securities & Finance practice, along with other relevant practice areas including tax and tax planning. At any juncture in private fund operations, from fund formation to ongoing fund management, our team can navigate the legal, regulatory and compliance and governance matters, advancing for our clients the diverse objectives of both fund sponsors and investors. 90

91 Chamberlain Hrdlicka Financial Services Practice Areas  Wealth Management Chamberlain Hrdlicka’s attorneys routinely counsel our financial services industry clients on their wealth management businesses. We understand wealth management represents the intersection of many disciplines, from investment advisory, broker/dealer, family office and tax and estate planning, to international tax and cross-border planning. Our strength in the tax and international tax areas also provides additional support to our clients with wealth management businesses. 91

92 Jonathan W. DePriest  Jonathan DePriest maintains a sophisticated mergers and acquisitions practice, with an emphasis on investment management and financial services industries and asset management and wealth management firms, as well as private pooled investment vehicles (such as hedge funds and private equity funds). Mr. DePriest has successfully concluded over $2 billion in merger and acquisition transactions, drawing also upon the Firm’s strength in the tax field to provide sophisticated analysis and support in structuring transactions.  Mr. DePriest also counsels asset management clients in launching and managing private pooled investment vehicles, and serves as counsel to the adviser for regulated investment companies. Mr. DePriest has assisted in launching private investment funds that currently manage over $7 billion in assets. These funds have comprised diversified multi-asset class, multi-strategy funds of funds as well as single-strategy hedge funds, liquid alternatives funds, registered and regulated investment companies, and alternative investments such as timber, private energy and private equity. 92

93 Chamberlain Hrdlicka White Williams & Aughtry Atlanta Denver Houston Philadelphia San Antonio jonathan.depriest@chamberlainlaw.com 93


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