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Allure of Customizable Investment Options Offered by Single Investor Funds and Attendant Allocation Risks

11 Jan 2022

Todd Boudreau spoke to Private Equity Law Report for an article covering why investors find the flexible investment opportunities of single investor funds (SIFs) appealing, factors that could potentially lead to inequitable allocations between SIFs and commingled funds, and steps sponsors can take to mitigate those risks.

According to Todd, investors need to take care to not make their SIFs' customized strategies too bespoke. "Investors probably want to keep them pretty broad so they're able to get unique investment opportunities that come along."

Todd added that a common method for managing investment allocation risks is to implement a lockstep policy under which the size of a SIF's investment is fixed based on the size of a specified fund's investment.

"If the specified fund is purchasing X percent of an asset/investment, then the SIF won't go over some specified percentage of that amount. It functions more like a side pool of capital, as the terms are different from a co-investment," Todd said. "That approach is easier for managers that are moving quickly and trying to close transactions because they can quickly figure out how much a SIF can invest without a conflicts violation."

Read the full article.

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