Attorney Zac Barnett is the co-founder of Fund Finance Partners. An Illinois-based lawyer, Attorney Zac Barnett provides clients with a range of products and services including hybrid subscription facilities, which are being used more widely in private equity funding. Subscription facilities offer several benefits to investors as well as limited partners (LPs).
Limited partners are comprised of investing interests that come from institutional accounts, pensions, and wealthy individuals. In private equity, limited partners commit capital to a fund while a general partner (GP) or a private equity firm invests the money in companies (both public and private). The GP charges performance and management fees.
As it relates to LPs, subscription facilities allow sponsors to properly manage capital calls, thereby reducing the administrative burden on limited partners. Even with these benefits, LPs have to pay attention to a few factors. Among the number of considerations, negotiating the contract is important. GPs negotiate with both the lender and the LPs when setting up the contract. However, LPs have to make sure they understand all of the restrictions and limitations that are a part of the ending contract because the GP will not necessarily divulge this information.
Another consideration closely related to negotiating the contract relates to lender contact with LPs. Typically, lenders do not contact LPs. However, this would still happen especially when the limited partners prefer to have more transparency around the lender’s perception of the fund, fund’s creditworthiness, and fund’s track record.
Disclosure is an additional factor to consider. Information is typically disseminated among LPs as to how the fund is going to be used, but local law dictates disclosure of the facility.
