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Structuring Direct Lending Funds: Open-End vs. Closed-End Structures

Recurring Regulatory, Valuation, and ERISA Considerations; Structures to Confront Pervasive Tax Issues

Note: CPE credit is not offered on this program

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Tuesday, February 28, 2023

Recorded event now available

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This CLE course will examine issues associated with the formation and operation of direct lending funds, including those organized to lend to small and medium-sized businesses, certain real estate developers, and other real estate market participants.

Description

For more than a decade, small and medium-sized businesses and real estate bridge financing borrowers have increasingly looked to direct lending funds, as opposed to banks and other traditional lenders, as a source of capital.

Post-2008, in particular, the imposition of additional regulatory requirements on banks in the calculation of their capital and conducting various banking activities was one of the most influential historical drivers behind this disintermediation between banks and borrowers.

Conversely, gyrating and unpredictable capital and credit markets in this period have created an exciting opportunity for many private investment funds to offer this same financing abdicated by many banks. As a result, direct lending funds, a subset of general credit-focused investment funds, have become an essential part of the mix of strategies to which many institutional investors and family offices desire exposure.

The discussion will include corporate structures, and related tax and regulatory considerations in relation thereto.

Listen as our authoritative panel examines the structuring options available and considerations relevant to direct lending funds, and the related tax, ERISA, and regulatory issues driving many of these alternatives--as well as their crucial compliance obligations.

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Outline

  1. Comparing open to closed-end structures, including the following key considerations: liquidity and valuation
    1. Avoiding liquidity mismatches
    2. Frequency of withdrawal periods
    3. Length of notice periods
    4. Gates
    5. More current strategies
      1. Length of payout periods
      2. Novel payout calculations (e.g., disassociate from NAV?)
  2. Selected structures/strategies for U.S. federal income tax issues posed by direct lending strategies
    1. Issues for U.S. taxable investors
    2. Strategies for non-U.S. investors
    3. Foreign-owned U.S. corporate lenders
    4. Post-tax reform: Are corporate structures, even for U.S. taxable investors, the wave of the future?
  3. Recurring regulatory issues unique to the direct lending funds
    1. Conflicts
      1. Investment Advisers Act Section 206: principal transactions
      2. Conflicts among typical affiliates
        1. Credit funds: originator, servicer, principal investment vehicles
        2. RE related
    2. Balancing Securities Act/private placement requirements with marketing for business of the fund

Benefits

The panel will review the following key issues, among other matters:

  • Comparing open to closed-end structures, including liquidity and valuation
  • U.S. federal income tax issues posed by direct lending funds and strategies for addressing them 
  • Recurring regulatory issues unique to the direct lending funds
  • Ramifications of a higher interest rate environment

Faculty

Huttler, Steven
Steven Huttler
Partner
Sadis & Goldberg

Mr. Huttler has extensive experience in corporate, finance, investment fund and securities matters, including the...  |  Read More

Lebowitz, Seth
Seth Lebowitz
Partner
Sadis & Goldberg

Mr. Lebowitz advises clients on the tax-efficient planning and execution of a broad range of transactions, with a...  |  Read More

Fitzgerald, David
David Fitzgerald
Partner
Sadis & Goldberg

Mr. Fitzgerald is a Partner in the firm’s Financial Services and Corporate Groups. His practice focuses on...  |  Read More

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