Private Equity Report Spring 2023, Vol 23, No 1

May 2023
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Letter from the Editors

Like much of the economy, the private equity industry has shifted into a lower gear in the face of high interest rates, market uncertainty and ongoing geopolitical turbulence. Even so, the work of structuring deals, tapping into capital markets, and managing regulatory and technological change continues—and is arguably even more important to the bottom line in a lower-growth environment.

The Spring 2023 Private Equity Report probes important trends unfolding on each of these fronts. We hope you find it a useful resource for managing risk and seizing opportunity.

  • Carve-Out Deals Today: Overcoming Complexity and Unlocking Value
    The potential for carve-out acquisitions to unlock value in underinvested businesses has been long known. But the process of extracting a business unit from its parent, with all necessary financial information, assets, employees and data intact—and while under considerable time pressure—can be exceptionally complex and test the skills of even the most experienced deal teams. Here we present a systematic review of the key dimensions of carve-outs, along with their major considerations.
  • Spring Roundup of Crucial U.S. Regulatory Developments
    As we approach the middle of the year, the SEC continues its brisk rulemaking pace. Its proposal to replace the Custody Rule with the Safeguarding Rule would expand coverage to include a wider range of assets, account for industry changes that have occurred since 2009 and much more closely regulate the adviser-custodian relationship. In addition, proposed amendments to Form PF have been adopted, and the Cybersecurity Rule Proposal comment period has been reopened.
  • The Up-C Goes to Court: Managing the Emerging Risks of an Advantageous Tax Structure
    The Umbrella Partnership Corporation, or “Up-C,” has become an increasingly popular way for sponsors of LLC portfolio companies treated as partnerships for tax purposes to access the public securities markets while preserving many of the tax efficiencies of a traditional partnership ownership model. However, care must be taken, as the Up-C has also attracted the attention of the plaintiffs bar and minority investors alleging the structure allows conflicts of interest and unfair allocation.
  • Generative AI: Risks and Considerations for Private Equity
    The release of powerful generative AI tools has prompted private equity, like virtually every other industry, to imagine the possibilities for automating a wide range of tasks. But generative AI also brings with it a host of regulatory, quality control and third-party management risks. By establishing appropriate risk-based policies, procedures and guardrails, private equity firms can more safely manage their use of this technology as it becomes more prevalent and more powerful.