Beware Pitfalls In Private Equity Secondary Transactions

By Katherine Ashton, Kenneth Berman, Julie Riewe, John Rife III and Norma Angelica Freeland (October 3, 2018, 12:59 PM EDT) -- As private equity funds approach the end of their lives, a fund's general partner is often encouraged by the fund's limited partners and third-party buyers to consider secondary liquidity solutions. Liquidity solutions can involve fund extensions, asset sales to third-party buyers, tender offers to limited partners, or other creative structures to maximize value in remaining fund assets. When properly executed, these structures can satisfy all stakeholders by allowing some to realize value while others remain invested in the assets. These structures, however, can be rife with conflicts of interest. A vivid example of the possible pitfalls — and the vigilance of the U.S. Securities and Exchange Commission regarding fair disclosure — can be seen in the Sept. 7 settlement of an administrative proceeding and fine against VSS Fund Management LLC. VSS was alleged to have failed to provide the limited partners of a private equity fund it advised, VS&A Communication Partners III LP (Fund III), with material information relating to a change in value of the assets of the fund in connection with a secondary offering led by Jeffrey T. Stevenson, the owner and managing partner of VSS.[1]...

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