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Leveraging New Technology for Side Letter and Other Legal Document Management

The private markets fund industries have seen a significant proliferation in both the volume and complexity of side letters over the course of the last decade.  Given the long-term nature of investing in the private markets via closed-end structures, where investors are often locked into such vehicles for periods of 10 years or longer, investors have long sought to manage such risk contractually via Fund governing documents and side letters and, as such, take managers’ compliance with such documents very seriously.

For some time now, this proliferation has attracted increasing scrutiny from both the SEC and investors out a concern as to whether fund managers are dedicating adequate resources, time and attention to effectively managing their increasingly burdensome and complex obligations stemming from Fund governing documents and side letters.   For example, ACA has increasingly seen private markets fund managers be pressured by multiple institutional investors to provide periodic certifications to such investors attesting to compliance with such legal documents. ACA notes that the vast majority of enforcement actions in the private markets space have involved one or more violations of Fund governing documents and/or side letters.  Additionally, in multiple such instances, managers have had to present an action plan to the SEC exam staff addressing in detail how they intend to enhance their processes to effectively monitor and document compliance with, their obligations set forth in Fund governing documents and side letters.

Further, there has also been a significant increase in scrutiny from both the SEC and investors around how such managers are monitoring and enforcing their funds’ rights under agreements with fund portfolio companies.  For example, in the private credit space, multiple managers have been found deficient by the SEC examination staff for failing to consistently: (i) track their Fund portfolio company borrowers’ violations of key provisions (economic and non-economic) in loan and/or other credit agreements that triggered default events; (ii) take necessary steps to address these matters (including exercising relevant Fund rights triggered by these events); and (iii) report material issues relating to such events to their investors.

In the current regulatory and business environment, the case for effectively leveraging technology solutions to help ease this burden and mitigate risk through automation and workflows has never been greater. ACA’s ComplianceAlpha® platform includes new functionality that has been designed by our technology, compliance, and operational experts to help our private markets clients more easily manage their responsibilities relating to the entire gamut of their legal documents. 

A few of the many useful functionalities that our ComplianceAlpha legal documents management tool offers include the ability to: (i) conduct various types of searches of side letters, NDAs, fund governing documents, portfolio company agreements and other legal documents; (ii) track individual provisions in legal documents that contain rights or obligations and assign responsible parties to monitor, manage and document via the tool compliance with such provisions; (iii) link periodically recurring provisions (e.g., quarterly reporting obligations owed to a specific LP) as well as provisions without a specific frequency (e.g., LP co-investment rights of first refusal that may be triggered when co-investment opportunities arise) to calendared activities to create effective workflows; (iv) use natural language processing and OCR technology to automatically scan and parse fully signed documents into the individual provision categories as well as pull out key information like counterparties, commitment size and more; and (v) search for all types/variations of a particular type of provision granted to multiple parties across all side letters in the database (which can be leveraged to reduce compliance risks and burdens associated with offering to LPs and/or other counterparties (such as portfolio companies) unnecessarily varying or inconsistent terms around similar provisions).



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Vivek Pingili

Vivek Pingili


ACA Group

Member since

10 Jun 2021


New York

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