Private funds, depending on the types of investors and assets targeted, may be structured as a single fund, a master-feeder arrangement, a parallel fund structure, or in the case of a fund-of-funds strategy, employing these structures to invest in underlying private funds. A private equity or real estate fund seeking to dispose of an investment will typically structure this as a sale by a fund of the underlying portfolio company or a sale by the underlying portfolio company of its business or assets.
Based on current guidance, the OZ Fund sponsor may need to structure the OZ Fund as a quasi-fund of funds, so that when the underlying investment is sold, the OZ Fund sponsor can effectuate it as a sale of an OZ Fund interest. Structuring becomes even more complex in cases where the OZ Fund sponsor wants to launch an OZ Fund that will invest in multiple assets, as opposed to a single-asset OZ Fund.
In certain circumstances where the timing of an investor’s capital gains cannot be made to match the OZ Fund’s capital call schedule, the OZ Fund sponsor may wish to consider allowing investors to contribute to the fund before capital would otherwise called, or borrowing to fund an investment and allowing the investor to fund its portion of the investment at a later date.
Investors typically expect that a fund manager will make a significant capital commitment to the fund to align its interest with the limited partners and show that the fund manager has skin in the game. An OZ Fund may also segregate qualifying and nonqualifying investments for tax reporting purposes, and so an OZ Fund sponsor which invests nonqualifying cash in an OZ Fund may be required to invest through a separate vehicle.