INTRODUCTION Contributed by: Elizabeth Shea Fries, Sidley Austin LLP
Distribution opportunities arise through fintech or other platforms. In some cases, an existing fund is offered (directly or by means of an access/feeder fund) with less control by the manager over the sales and investor communication process. Alternatively, managers create new products, such as registered interval funds, BDCs, ELTIFs or Luxembourg Part II UCI Funds, that may not be subject to the same regu - latory regime as purely retail products but are more regulated than alternative funds. Managers must con - sider the relative benefits, costs and risks of these differing approaches. Regulators are also considering these issues, and we can expect additional regulatory focus through new requirements, enforcement action, or both. Fund and fee/expense structures A continuing trend is the increasing creativity employed when establishing investment strategies, when struc - turing funds, and when executing on investment pro - grammes. Exchange-traded funds (ETFs) are now offering private credit and other strategies. Managers are engaging in joint venture arrangements globally to link the ability to administer or distribute a product with the ability to manage an alternative strategy. In the USA, many of these joint ventures are focused on bank-maintained “collective investment trusts” that can be made available to benefit plan investors, including 401(k) plans (but not individual retirement accounts). Target date and other multi-asset strate - gies are increasingly incorporating a less liquid strat - egy as part of a long-term investment plan. Managers are also offering co-investments (directly or through co-investment funds) and offering tai - lored fees and services (including separate account management). Fees and expenses remain an area of focus, both as investors seek to target better net returns and as regulators focus on transparency. Even in a regulatory environment focused on deregulation, supervision and enforcement of basic disclosure and conflict of interest considerations remain paramount. Given increasing costs, expenses continue to be passed through (including manager costs such as internal legal and accounting, and the use of affili - ated service providers) subject to regulatory focus on clear authorisation, proper calculation and transparent
reporting. The multi-strategy “pass-through” model has produced some of the strongest returns in recent years, with the pass-through model offering both the opportunity to compete for talented investment teams and the ability to develop or acquire and deploy inno - vative technologies that can enhance investment and operations. Co-investments Co-investment opportunities remain a popular strat - egy to attract investors and lower investors’ overall costs. Managers in this context must be attentive to appropriate tax and legal structures and whether to create a vehicle and/or run a formal programme, as well as to disclosure of conflicts of interest both to the co-investors and the main fund investors, which requires anticipation of issues when raising a closed- end fund. Navigating co-investment opportunities requires clear communication, transparency and a thorough understanding of the legal and regulatory implications to manage relationships with investors successfully and avoid regulatory issues. ESG considerations Europe remains ahead in pursing ESG principles and in related regulation. In the USA, the issue has largely faded in the wake of other political priorities. Man - agers continue to struggle with the accessibility and reliability of ESG-related data, and key themes include ensuring a manager is doing what it has said it would do from an ESG perspective. Here too, regulators in the USA and Europe have pursued enforcement and litigation claims. Regulation and compliance As the markets and technology are accelerating, so too is the regulatory environment. In Europe, AIFMD2 is required to be implemented into member state law by April 2026. Amongst other things, it recognises loan origination as a core activity of an alternative investment fund manager. There is no pan-EU lend - ing passport as such, but there is some expectation that it will be easier to make loans on a cross-border EU basis with these new permissions. In the prior US administration, SEC rule-making (some of which has been rejected by the courts) had been a focus. Today, the SEC and other regulators are still
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