Fund Formation
SADIS&GOLDBERGLLP
PreparedFor:Mark
AbeshouseandAlanMason
ABOUT SADIS
Sadis&GoldbergLLPisaninternationallyrecognizedlaw firm.Drawingontheexperienceanddepthof ourlawyers,weleverageeachlawyer’sindustry-specific knowledgetohelpourclientssucceed.Thiscollaborative approachbringscollectiveinsighttothetablethat contributestosensible,efficientresolutions,andallowsus toremainattentivetocostandtimesensitivities.Sadis clientsincludedomesticandinternationalentities,financial institutions,familyoffices,venturecapitalfunds,hedge funds,privateequityfunds,buyoutfunds,commodity pools,specialpurposevehiclesandnumerousbusiness operatinginvariousindustriesaroundtheworld.
INDUSTRY INVOLVEMENT
SadisAnnualPrivateFundsForum–Industryleaders fromlawfirms,accountingfirms,thirdpartyadministrators, directorsandconsultantsfocusedontheprivatefund industrygathertogetherforseveraldays fromacrossthe globetoshareideasanddiscussrecentdevelopments facingthefinancialservicesindustry.
SadisBusinessBreakfast–Bringstogetherinvestors, founders,accountants,analysts,capitalproviders,and otherbusinessleaderstodiscusstrendingtopicsand network.
IndependentSponsors–Sadishostsnetworkingevents forcapitalprovidersandindependentsponsors.
Sadis Family Office Dinners – Executives from family offices networking and sharing ideas on market trends acrossvariousindustries.
FOCUSED SOPHISTICATED REPRESENTATION
Sadis maintains a diverse, business-oriented practice focused on private investment funds, asset and wealth managers, family offices, litigation, corporate, mergers & acquisitions, real estate, regulatory and compliance, tax and ERISA.
“No law firm is better in the hedge fund space. Sadis doesn’t just know the legal framework; they are on the cutting edge of defining it.”
– JOHN STERLING FOUNDER, STERLING FUND MANAGERS
STRUCTURING AND FEES
The first step is to create a Delaware LLC (“Investment Manager”) that will act as the investment manager for the entire Platform and would be owned by the Evolve principals (or an existing entity that acts as an Evolve holding company).
Steps
I. OCIO - OCIO arrangements are best suited for bespoke investment structures and strategies for each family client. The Client and not the Investment Manager owns the custody arrangements
The Investment Manager will act as outsourced CIO (“OCIO") for Evolve’s family office relationships. The Investment Manager would agree on investment guidelines with each family office client and enter into an SMA with the client governing how those guidelines would be implemented.
The Investment Manager would be responsible for identifying third party managers who would sub-advise all or part of a family client’s portfolio.
The Investment Manager would be granted discretionary or non-discretionary authority to allocate capital from the family office’s custody account to a third party manager, either through a sub-advisory agreement with the third party manager or by subscription into a third party manager’s pooled investment vehicle.
Fees for these type of arrangements are usually fixed management fees based on AUM, but could also include performance component.
OCIO Costs
It is hard to say how much it would cost to implement each OCIO arrangement. Much would depend on how much negotiation there would be with each family office client.
To prepare the form of agreement would be about $20-25K. I would expect negotiations to be an additional $5-10K per family office.
A form of sub-advisory agreement for third party managers and negotiating with those third party managers would be similar in cost.
STRUCTURING AND FEES
Fund of Funds
Evolve would set up its own discretionary fund of liquid hedge funds.
The Investment Manager would act as the investment manager for the Fund of Funds (“FOF").
We would also need to create a structure to act as the Fund and a Delaware LLC to act as General Partner of the FOF Offshore investors typically want to come into fund vehicles through a Cayman corporate vehicle. If US taxable investors are also being targeted, we would set up a Delaware LP to act as a feeder into a Cayman Master Fund, with a side-by-side Cayman feeder fund also investing in the Cayman Master Fund.
Getting access to EU and UK based investors can be tricky. There are private placement regimes in place in the UK and the Nordic countries, as well as Germany that would allow the Cayman fund to be marketed in those jurisdictions. If you want to take advantage of the EU fund passporting regime and market your fund more broadly across the EU, we would need to structure for that by creating an Irish or Lux Master fund and feeder fund, and then the US and Cayman feeders would feed into that EU based fund. You would also need to engage a third-party management company in the EU. We can make introductions to counsel and Mancos to assist.
Family office clients that wish to participate in all downstream fund investments selected by Alan and Mark could come in through the FOF.
FOF Costs
For a Cayman structure, setting up the FOF would cost approximately $60-65K for our legal fees, plus an additional $25K in Cayman legal fees. Adding a US feeder would involve an additional $40-50K in US legal fees. Typically, private placement compliance in the UK and the EU adds $30k-40K in each jurisdiction (but this would need to be confirmed with local counsel) and adding the full passporting regime to the fund structure can increase the costs of the launch by $100k-200K.
III Regulatory
As the investment decisions will be made in the US, once the AUM of the Investment Manager exceeds $25mm – assuming you put in place SMAs and assuming the Investment Manager is based in NY we would need to register as an investment adviser with the SEC. Prior to that, assuming you do not have more than 6 clients, no NY registration would be required. If the only thing you do is manage the FOF (no SMAs) then SEC registration would not kick in until you had $150mm in AUM.
STRUCTURING AND FEES
As far as marketing either the OCIO services or the FOF outside the US, rules in each jurisdiction would need to be confirmed with local counsel
The actual costs of structuring the platform will depend on the time spent by lawyers on the engagement. Our fees do not include costs or expenses incurred by us, or fees charged by other service providers. Nor does the estimate include any negotiations or structuring of management entities on behalf of the principals.
While we will make every effort to be as efficient as possible, if the terms of the platform change during the drafting or are subject to significant comments from founding investors or service providers, your actual costs may be higher. However, if we keep it simple and receive only limited comments to drafts, our fee estimates may be conservative in relation to the actual costs in connection with our services
Our Team
Sadis&Goldberg’steamisexceptionally experiencedinfundformation,fundregulation andinvestmenttransactions.Ourfirm's partnershavedecadesofexperience,both at Sadis&Goldberg,aswellasatlarger internationallawfirmsandtheU.S.Securities& ExchangeCommission.
OUR TEAM
Paul Marino PARTNER
212.573.8158
pmarino@sadis.com
Paul Marino is a partner in the Financial Services and Corporate groups. Paul focuses his practice in matters concerning financial services, corporate law and corporate finance. Paul provides counsel in the areas of private equity funds and mergers and acquisitions for private equity firms and public and private companies, and private equity fund and hedge fund formation.
Paul works on a variety of M&A transactions, including leveraged acquisitions, divestitures of business divisions, going-private transactions, and other strategic acquisitions and dispositions in the following industries: manufacturing, telecommunications, consumer products, hospitality, healthcare, and technology, among others. His practice also includes joint ventures and general company representation matters.
Paul has represented national and multinational corporations, ranging from telecoms to tech companies, as well as real estate syndication and financial investors and investment advisors. He has also negotiated and structured a number of U.S. domestic and cross-border mergers and acquisitions, and joint ventures.
Paulprovides counselintheareas ofprivateequity fundsandmergers andacquisitions forprivateequity firmsandpublicand privatecompanies, andprivateequity fundandhedgefund formation.
OUR TEAM
David Fitzgerald PARTNER
212.573.8428
dfiztgerald@sadis.com
DavidFitzgerald’spracticefocusesoninvestmentfunds, securities,jointventures,regulatorycomplianceand investmentadvisers.Heregularlystructuresandorganizes hedgefunds,privateequityfunds,fundsoffunds,separately managedaccountsandhybridfunds. Additionally,he advisesprivatefundmanagersonstructure,compensation, employmentandinvestorissues,andothermatters includingSECfilingsrelatingtomanagementcompanies.
Drawingonhis16yearsofexperienceasaninstitutional ChiefComplianceOfficerandGeneralCounsel,David providesongoingadvicetoinvestmentadviserson securitieslawissues. Hispracticealsoinvolvescounseling clientsinSECregulatorymatters,includingcompliance issuesrelatedtoinvestmentadvisers.
David is a Partner in the Firm’s Financial Services and Corporate Groups.
OUR TEAM
Yehuda M. Braunstein
PARTNER
212.947.3796
ybraunstein@sadis.com
YehudaM.BraunsteinheadsuptheFamilyOfficepractice andisalsoamemberofthefirm’sFinancialServicesand CorporateGroups. Mr.Braunsteincounselsfamilyoffice clientsinconnectionwithallaspectsoftheiroperations, includingformationissues,governanceandcompensation issues,transactionalanddaytodaymattersaswellas complianceissues.
Mr.Braunstein’spracticealsofocusesoninvestment funds,securities,jointventures,regulatorycomplianceand investmentadvisers. Heregularlystructuresandorganizes hedgefunds,privateequityfunds(includingrealestate, distressedandlendingfunds),fundsoffunds,separately managedaccountsandhybridfunds. Additionally,he advisesprivatefundmanagersonstructure,compensation, employmentandinvestorissues,andothermattersrelating tomanagementcompanies. Mr.Braunsteinalsostructures andnegotiatesseedinvestmentsandoperatingagreements. Heprovidesongoingadvicetoinvestmentadviserson securitieslawissues,includingSECfilings. Hispractice alsoinvolvescounselingclientsinSECregulatorymatters, includingcomplianceissuesrelatedtoregisteredadvisers, aswellasconductingmockaudits.
Yehudaregularly structuresand organizeshedge funds,privateequity funds(includingreal estate,distressedand lendingfunds),funds offunds,separately managedaccounts andhybridfunds.
OUR TEAM
Paul D. Fasciano PARTNER
212.573.8025
pfasciano@sadis.com
Paul D. Fasciano is a partner in the firm’s Financial Services and Corporate groups. Paul began his career as a general corporate attorney, and now focuses his practice on representing private fund managers, both in the formation phase and also in ongoing corporate and transactional matters, including mergers and acquisitions, activist investor representation, securities law compliance and derivatives.
Paul regularly counsels clients on structuring and forming U.S. and non-U.S. private investment funds, including hedge funds, private equity funds and custom “hybrid” funds incorporating features of both. Funds advised by Paul cover a wide variety of strategies and asset classes, with varying liquidity characteristics, including more typical asset classes such as publicly traded equities, as well as less typical asset classes such as loans, consumer receivables and renewable energy credits. Paul also has extensive experience in drafting and negotiating agreements memorializing the relationship between the principals of a fund.
Paul has advised participants in a variety of public and private merger and acquisition transactions in diverse industries and has brought this practice to focus on transactions involving investment advisers, broker-dealers and other players in the financial services industry.
OUR TEAM
Yelena Maltser PARTNER
212.573.8429
ymaltser@sadis.com
Yelena Maltser practices in the firm’s Financial Services and Corporate groups. Yelena regularly counsels clients on structuring and forming U.S. and non-U.S. private investment vehicles (including, without limitation, hedge funds, private equity funds, hybrid funds, funds with non-traditional asset classes, real estate funds, venture capital funds, funds-offunds, commodity pools, as well as managed accounts). Yelena also advises clients on structuring the management entities to such funds. She regularly prepares offering and organizational documents for investment funds; negotiates side letter agreements, seed capital agreements, joint venture agreements and compensation arrangements; reviews marketing materials; and provides ongoing advice to existing investment vehicles and management entities. In addition, Yelena counsels investment managers on registration and ongoing regulatory compliance issues.
Prior to joining Sadis & Goldberg, Yelena was associated with two other New York City-based law firms, where she was involved in general corporate work.
Yelena counsels investment managers on registration and ongoing regulatory compliance issues.
OUR TEAM
Erika L. Winkler PARTNER
212.573.8022
ewinkler@sadis.com
Erika L. Winkler is a partner in the firm’s Financial Services and Corporate groups. Erika’s practice focuses on the structuring and formation, capital raising and regulatory compliance of U.S. and non-U.S. private investment vehicles, including, without limitation, hedge funds, private equity funds, hybrid funds, funds with non-traditional asset classes, real estate funds, venture capital funds, special purpose vehicles, funds-of-funds, commodity pools, as well as managed accounts. She also regularly advises management companies and fund managers on a wide array of matters, including compensation structures, restructurings and reorganizations, joint ventures, side letters and seed capital transactions, and employment and investor issues, and negotiates and prepares related agreements and documentation.
Erika’s practice focuses on the structuring and formation, capital raising and regulatory compliance of U.S. and non-U.S. private investment vehicles.
OUR TEAM
Seth Lebowitz PARTNER
212.573.8152
slebowitz@sadis.com
Seth Lebowitz is a partner in the firm’s Tax group. Seth advises clients on the tax-efficient planning and execution of a broad range of transactions, with a particular focus on the formation, operation and investing activities of private equity and hedge funds. Seth has experience with:
• Domestic and international tax issues relating to fund structuring
• Joint ventures and partnerships
• Corporate and real estate investing
• Lending
• Securities trading
• Distressed investing
• Financial products.
Seth advises clients on the tax-efficient planning and execution of a broad range of transactions, with a particular focus on the formation, operation and investing activities of private equity and hedge funds.
OUR TEAM
Jaywon Choi ASSOCIATE
212.573.8424 jchoi@sadis.com
JaywonChoiisanassociateinSadis’FinancialServicesandCorporategroups,focusingonfund formation,corporatetransactions,andregulatorycomplianceforinvestmentfunds.
JaywonisfluentinKorean.
OUR TEAM
Jacob Shiffer ASSOCIATE
212.573.8027
shiffer@sadis.com
JacobShifferisanassociateinthefirm’sFinancialServicesandCorporategroups.Jacob concentrateshispracticesonprivatefundformation,mergersandacquisitions,andgeneral corporatematters.
PriortojoiningSadis,JacobservedintheUnitedStatesAirForceforeightyears,wherehe workedasanAnalyst.
REPRESENTATIVE TRANSACTIONS
• RepresentedBramshillintheirpurchaseofaRIA anditsmutualfundoperationsandemployees.
• Rollupofa$500Mregisteredinvestment adviser
• RepresentedSkybridgeCapitalinconnection withitspurchaseofCitiGroup’shedgefund businesswith$4.2Bofassetsunder management
• Representedaninvestmentmanagerin connectionwiththepartialsaleofitsbusiness, includingaworkouttoextricatethesellerfrom certainliabilities
• Representedaplatforminonboarding independentRIAteamw/compliance, employmentandtechnologyagreements.
• Representedteamfromwirehouseinliftoutto establishanindependentRIA.
• Representationofinvestmentmanagement companyascollateralagentinrated, institutionalCLOoffering
• Representedinvestmentmanagementcompany assyndicatorandcollateralagentinunrated offeringofbondsofsecuritizationvehicle focusedonlifesettlementsassets
• Multiplerepresentationofinvestment managementcompaniesinconnectionwith securitizationsandsyndicationsofinvestment assets
• RepresentedPEbackedfirm,oneofthelargest specialistfundadministrationandmiddleoffice solutionproviders,inmultipleacquisitions.The $8milliondollaracquisitionfurtherexpanded Apex’sfootprintintheU.S.andCanadian marketplaceandincreasedthevisibilityofthe Apexbrandworldwide
• Servedasco-counselintheportfoliorollupand refinanceofLawCashin$180milliondollarsale ofassets
• Representedalargeaccountingfirminitsspin outofitsfinancialadvisingpracticeand structuredandmergedwithanotherlarge advisingfirmtoform.Thetotalaccountunder managementofthenewfirmwas$3Batthe timeofthetransaction.
• $125Mrefinancingandbuyoutofspecialty lendingcompany
• $100Msaleofafinancialplanningcompanytoa privateequityfirm
• Saleof$125Mmiddlemarketfinancingcompany
• Saleof$70Msoftwareprovider
• Saleof$95Maerospacepartsprovider
• Purchaseof$65Mmilitaryapparelcompan
• Purchaseof$85Mfinancialadministration company
• Saleof$40MMadministrator
• Reversemergerandpurchaseoftelecom companies
• $125Msaleofinternettextilecompanytoa Fortune50company
• Representationofsyndicatorinprogramof securitizationsforemergingmarketcompanies
REPRESENTATIVE CLIENTS
We have represented a diverse variety of clients throughout our long history, spanning across several industries. These clients include, but are not limited to:
• ApexGroupLtd.(portfolio companyofGenstarCapital)
• FieraCapital
• Gramercy
• Investcorp
• Ripplewood
• TailendPartners
• BrownBrothersHarriman
• CrownVentures
• GAMCo.
• Ibex
• Neuberger
• SkyBridge
• TimberlinePartners