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Course Number: LAW 997D

Course Credits: 2

“[Private funds] matter because they’re large, and they’re growing in size, complexity, and number. . . . The sheer size and transaction activities of these funds represent a critical portion of our overall capital markets. . . . Private funds touch so much of our economy.”
– SEC Chairman Gary Gensler
Remarks, Institutional Limited Partners Summit Nov. 10, 2021

Private capital—capital allocated to private equity funds, hedge funds and other privately managed investment funds—is dislodging traditional banks and capital markets as a source of financing worldwide. Private capital is deployed through funds as non-bank lenders (the so-called “shadow banking” system) in the form of equity, debt and every instrument in between, and finances companies from early stage to maturity and beyond. Private funds buy and manage every conceivable kind of company and asset, including those traditionally run by public instrumentalities for the common good. As the biggest users of leverage themselves, private investment funds drive terms and therefore systemic risk in credit markets and the real economy. Private investment funds are less well understood and less regulated than traditional forms of organizing capital. While these investment vehicles have been active for decades, their outsized impact on global markets and regulatory regimes is new. These funds allocate such large amounts of capital on behalf of such widespread beneficiaries that they can noticeably impede or assist pressing public goals, such as tax policy or “responsible investing” (including “ESG”-focused investing).

Almost $20 trillion are invested in these funds, with a sizable amount of this capital provided by public pension plans, which depend on fund returns to pay for the retirements of their millions of beneficiaries—firefighters, teachers and other state employees.

Crucially, the size and influence of private investment funds coincides with, and is helping drive, material change in the asset management industry. Regulators are demanding greater transparency from private fund managers while simultaneously debating whether to increase access to their managed funds for retail investors. “Assets under management” in the space are more concentrated than ever with larger firms, many of which have themselves become publicly listed. Many fund management firms remain in the control of aging founders and have yet to implement succession plans. Demand for innovative fund structures and new forms of investible assets (e.g., royalty streams or cryptocurrencies) proliferate. Widespread registration of, and information collection by regulators from, U.S. and European private fund managers is barely a decade old. Automation and the application of the blockchain are beginning to upend the administration of manager firms and their funds. The private investment funds industry is “touch[ing] so much of our economy” just when it is poised for material generational, regulatory and technological change.

As lawyers and citizens, graduates will inevitably be in direct or indirect contact with private investment funds (e.g., as counsel or compliance professionals, and as counterparties, tenants, patients or borrowers). This course will ground students in the structure and operation of, and issues raised by, private investment funds, principally through the study of private equity and hedge funds. It will equip students with the language, players and concepts of the industry to operate as effective legal and compliance professionals, knowledgeable regulators, or general practitioners. Using private investment funds and their ecosystem as the delivery mechanism, students will further develop basic facility in partnership, tax, regulatory, corporate governance, transactional practice-of-law, conflicts and ethics.