TAILIEUCHUNG - Private Equity Fund Formation

The Reserve Fund was only the second MMMF to break the buck since the SEC adopted rules governing these funds in 1983, with the first being the Community Bankers US Government Fund in 1994. 6 Both funds had losses significant enough to cause them to break the buck and sponsors that were unable to provide non-contractual support to prevent the losses from being passed on to shareholders. However, it was the lack of sponsor support for these two funds that was more unusual than the underlying losses suffered, as credit events have impacted many more than two funds in the. | PRACTICAL LAW COMPANY Private Equity Fund Formation Scott W. Naidech Chadbourne I Parke LLP This Practice Note is published by Practical Law Company on its PLCCorporate Securities web service at http 3-509-1324. This Note provides an overview of private equity fund formation. It covers general fund structure fund economics fundraising fund closings and term managing conflicts and certain US regulatory matters. It also examines the principal documents involved in forming a private equity fund. Private funds are investment vehicles formed by investment managers known as sponsors looking to raise capital to make multiple investments in a specified industry sector or geographic region. Private funds are blind pools under which passive investors make a commitment to invest a set amount of capital over time entrusting the fund s sponsor to source acquire manage and divest the fund s investments. The key economic incentives for sponsors of funds are management fees and a profit participation on the fund s investments. The key economic incentive for investors is the opportunity to earn a high rate of return on their invested capital through access to a portfolio of investments sourced and managed by an investment team that is expert in the target sectors or geographies of the fund. There are a variety of private funds with different investment types and purposes such as Venture capital funds that invest in early and developmentstage companies for more on these kinds of investments see Practice Note Minority Investments Overview http 1-422-1158 . Growth equity funds that invest in later-stage pre-IPO companies or in PIPE transactions with public companies for more on these kinds of investments see Practice Notes Minority Investments Overview http 1-422-1158 and Practice Note PIPE Transactions http 8-502-4501 . Buyout funds that acquire controlling interests in companies with an eye toward later

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