USA Trends and Developments Contributed by: Olesya Bakar, William “Bill” Jackson, Daniel E Levisohn and Steven D Lear, Holland & Knight LLP
to acquire control of an investment opportunity that any one of them would not typically acquire on an individual basis. Club JVs are frequently used in cases where the club JV investors desire to acquire control of an attractive existing operating business or provide new equity capital to a talented existing management team to keep the management team together so that they can pursue new investment opportunities. In most club JV structures, the club JV investors will form a new US entity together, the only owners of which will be the club JV investors. In some cases, the club JV investors will hire a jointly selected manage - ment team and then delegate day-to-day manage - ment control of the club JV’s operations to the man - agement team subject to a management committee or board comprised of the club JV investors. There are many reasons why CJVs and club JVs have become increasingly attractive to both investors and sponsors. Many institutional investors desire greater control over their investments and less risk. CJVs and club JVs offer such investors the potential for more control than they might otherwise have when investing in a blind pool investment fund and less concentration risk than they might have when investing in a standard two- party joint venture. In addition, as transaction sizes continue to grow larger and larger, many institutional investors have investment concentration limitations that may require them to invest with other institutional investors to access larger investment opportunities. CJV and club JV structures also have the potential to create better alignment between institutional investors and sponsors because CJVs and club JVs can be flex - ible and designed to address the needs of each group better than their respective needs can be addressed through traditional investment structures. CJVs and club JVs can allow both institutional investors and sponsors access to a larger number and wider variety of potential transactions and investment opportuni - ties than each would otherwise be able to access on their own. CJV and club JV structures typically offer institutional investors more governance control than other invest -
ment structures with multiple institutional investors. This greater governance control has the potential to provide institutional investors with more flexibility to adapt to changing market and regulatory conditions and investment requirements. CJV and club JV structures frequently offer sponsors better or additional compensation than they would otherwise receive. The larger equity capital commit - ments will often result in greater fees (investment management fees, asset management fees, transac - tion fees, etc), and the larger transaction sizes will frequently create an opportunity for the sponsor to generate additional returns and carried interest. CJVs and club JV structures are not without risk. The transaction documentation for a CJV or club JV will typically be more complex than for a standard joint venture, and the transaction documentation may take longer to negotiate. The greater number of investors involved in a CJV or club JV can result in more regu - latory hurdles (eg, tax, Employee Retirement Income Security Act (ERISA), Investment Adviser Act, Invest - ment Company Act, broker-dealer regulations and anti-trust regulations) that will need to be addressed and a divergence of investor requirements and goals (eg, investment limitations, debt limitations and return expectations) that will need to be reconciled. Programmatic Joint Ventures A PJV typically consists of either a US joint venture formed for the purpose of making multiple underlying investments or a series of US joint ventures formed by the same joint venture sponsor and investor for the purpose of making a series of underlying investments. PJVs have become increasingly attractive to both investors and sponsors because the PJV structure provides an efficient and cost-effective way to deploy a large amount of capital in multiple investments. Utilising a PJV can make investors and sponsors more competitive in today’s market environment because the equity capital has been identified and is available, and the parties can focus on identifying and underwrit - ing investment opportunities rather than negotiating the terms of one or more new joint ventures. The PJV structure is also very flexible, and can take various forms and be utilised at any level of the capital stack.
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