Key takeaways:

• In 2007, the Federal pensions regulator opined that, contrary to settled expectations, a private equity fund could be treated as a trade or business, thus exposing the fund to liability for pension liabilities from its portfolio companies. A subsequent Federal court case in 2010 adopted this view.
• Last month, a Federal district court, in a well-reasoned opinion, analyzed a typical private equity fund structure and held that the fund was not a trade or business. This decision also supported the fund sponsor's efforts to structure the investment so as to further insulate the fund from this risk.
• Although this area of law is still developing, it is our view that the 2012 decision should over time take hold as the prevailing analysis of this issue. However, in light of the ongoing uncertainty, fund sponsors should continue to consider structural ways of insulating funds from this risk.