Letter from the Editors

After a challenging two years, the private equity industry is undergoing a healthy rebound. But as deal flow picks up, there are a host of regulatory and legal developments to consider, from the priorities of the new administration to the implementation of the Corporate Alternate Minimum Tax. The Fall 2024 Private Equity Report delves into some of these topics, as well as issues arising from opportunities in restructuring, real estate and AI.

• Strange Bedfellows: Structuring Governance and Exit Rights for a Restructured Company. Debt investors whose holdings are converted to equity as the result of a restructuring face the prospect of negotiating governance and exit rights for the reorganized entity with other former debtholders, who may have very different priorities and levels of equity investment experience and orientation.
• To File, or Not to File: The Changing Calculus for Voluntary CFIUS Filings. Historically, many sponsors have made voluntary filings with CFIUS, the interagency body charged with examining the national security implications of investments by foreign entities made into U.S. businesses. Sponsors should carefully analyze the risk-reward of voluntary filings in light of CFIUS’s more aggressive approach.
• Data Centers: Navigating the Opportunities of a Unique Asset Class. The explosive growth of AI has led to a sizable unmet demand for the data centers AI requires. While this presents real estate developers and investors with significant opportunities, there are also numerous factors to consider, ranging from the availability of power to regulatory developments.
• SEC Private Fund Adviser Enforcement FY 2024 Highlights. Over the past year, the SEC’s Division of Enforcement has brought cases underscoring its ongoing focus on numerous regulatory issues important to private investment advisers, including continuing to focus on post-commitment management fee calculations, off-channel communications, fee and expense disclosures and MNPI controls.
• The Corporate Alternative Minimum Tax: A Primer for Sponsors and Investors. Proposed regulations regarding the Corporate Alternative Minimum Tax would have far-reaching implications for a broad swath of entities, including private equity firms. Certain sponsors and limited partners could find themselves having to navigate extensive annual compliance obligations, particularly regarding the calculation of income from the partnership.
• Managing AI-Related Risks Associated with Vendors. Sponsors using vendor-supplied products or services for investment or management functions that may involve AI need an effective approach for managing the AI-related risks associated with those vendors. This is particularly true given increased regulatory scrutiny of both outsourcing and AI use by financial service firms.
• Supreme Court Case Could Increase Sponsors’ Financial Liability in Trademark Disputes. Plaintiffs that have suffered trademark infringement are entitled to recover the defendant’s profits. Recently, a federal district court took an expansive view of “defendant’s profits” to include the profits of legally separate, nonparty corporate affiliates of the defendant that shared common ownership. The case—with significant implications for sponsors—is now before the Supreme Court.