How Will the SEC’s New Pay to Play Rule Impact Mergers and Acquisitions of Hedge Fund Management Companies?
Scott R. MacLeod- Orlando
Investment Management Partner Scott MacLeod was quoted in a Hedge Fund Law Report article titled, "How Will the SEC’s New Pay to Play Rule Impact Mergers and Acquisitions of Hedge Fund Management Companies?"
The article lists options available to prevent or remedy violations of the SEC's recently approved pay to play rule (Rule) in connection with acquisitions of hedge fund management businesses. The ideal approach, of course, is to bring an awareness of pay to play issues to any potential hedge fund manager acquisition, and to perform due diligence and structure and draft the acquisition agreement accordingly. However, even the best pay to play due diligence, like any due diligence, is imperfect. Accordingly, Mr. MacLeod suggested a strategy of indemnification that would, in effect, reimburse the acquirer for revenue lost based on Rule violations. “A huge part of what you buy in an investment management acquisition is assets under management," explained Mr. MacLeod. "So, anything that causes any leakage of clients can be a big problem. What you could see as a result is more finely tuned earnouts or indemnification or escrow baskets, and payback for deals if you have big government clients from whom you can’t collect fees for a significant period or that you mandatorily redeem as a result of the conflict.”
To read the full article, please click here.
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