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Funds: Private Equity, Hedge and All Core Structures by Matthew Hudson

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Chapter 4

Structural Variants and Alternative Structures to Chapters 2 and 3

4.1 INTRODUCTION

In this chapter we build on those structures discussed in Chapters 2 and 3, and discuss some structural, regulatory and tax-driven variants and other structures that are used in the market as financing vehicles. This chapter only explores certain more common variants or structures used in the UK, the US and the EU: it is not exhaustive.

4.2 PLEDGE FUNDS

Pledge funds are funds where investors have not contractually committed to invest, but have pledged or ring-fenced certain money to invest in specific deals sourced and to be managed by a manager as the investor chooses from time to time.

Each investor can either enter into a separate but identical agreement with the manager, often called a ‘participation agreement’, or alternatively might invest a small initial sum into a fund or vehicle managed or advised by the manager, with a further pledge. Under the structure, each investor can pay some form of participation fee to the manager for a set period of time. In return, the manager undertakes to source and offer all the investment opportunities of a particular type to those investors.

When the manager has identified a potential investment, there is typically a two-stage process. First, the manager will provide each investor with a ‘teaser’ containing a summary of the proposed investment. The manager will ask investors to indicate whether they are interested in participating in the opportunity ...

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