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21 February 20239 minute read

Institutional Investor Newsletter


Welcome to the inaugural issue of DLA Piper’s Institutional Investor Newsletter. The aim of this occasional (and long overdue) publication is to keep you informed about developments in the investment funds space, share our perspective on a hot topic or two, and stay connected through updates about our team of lawyers.

Our team strives to provide you with all the benefits of a global law firm, and we’re committed to working for the success of all of the institutional investors we are privileged to call our clients: public and private pension funds, endowments, insurance companies, funds of funds, sovereign wealth funds, development finance organizations, and other institutions.

Investing in funds in today’s global marketplace often requires advisors with international reach, on-the-ground knowledge, and industry experience. We try to bring each of these attributes to bear in all of our work for you. In 2022, we assisted our clients in over 2,000 transactions in jurisdictions and sectors spanning the investment funds space.

For more information about the scope and scale of our practice, please visit our DLA Piper home page.

We view ourselves as an extension of you, our clients, and we want to partner with you for the long term. We think of you often, hoping that you are keeping safe and well. Please do not hesitate to reach out if you have any questions or if we may be helpful in any manner. We are looking forward to another successful year ahead, and we hope you enjoy this update from our team.

David B. Parrish
DLA Piper Executive Committee Member
        Nicole J. E. Brennig
Austin Managing Partner


Legal term corner

Understanding writeoffs

Question: When is a writeoff not really a writeoff?

Answer: When it requires a determination in accordance with the Internal Revenue Code.

The Securities and Exchange Commission remains focused on private fund valuations and specifically on the calculation of management fees based on such valuations. Private equity funds commonly charge management fees based on invested capital during the step-down period following the end of a fund’s investment period, and the management fee base is often reduced in respect of investments that have been permanently written off.

Sponsors have generally retained discretion to determine whether an investment is permanently written off for purposes of calculating management fees unless the partnership agreement contains a specific formula or an objective test; however, the SEC has made clear through recent investigations and enforcement actions that it no longer defers to the sponsor in situations where such discretion is potentially abused to the sponsor’s benefit.

Where a sponsor has included a more objective formula in the partnership agreement, no matter how onerous, the SEC has not taken issue with the nature of that test so long as it has been put through the process of disclosure to, and negotiations with, private fund investors.

You may have seen sponsors include in their partnership agreements a statement that a portfolio investment will be deemed permanently written off, and thus excluded from the management fee base, where it has been deemed worthless for purposes of US federal income taxes. Sometimes you’ll also see a reference to Internal Revenue Code 165(g), which is the operative federal income tax provision permitting an investment to be treated as a loss from sale or exchange where such investment has become “worthless” during the taxable year.

While this language has been around for years, we’ve seen an uptick in sponsors seeking to include similar wording when introducing permanent writeoff concepts for the first time. In other cases, we’ve also seen such language proposed as a revision where the writeoff language in prior funds was deemed too broad or ambiguous, with fund counsel citing increased SEC scrutiny as their reason for the change.

What may be less apparent, however, is that these writeoff terms are often illusory, given the difficulty in actually deeming a security “worthless” for federal income tax purposes. As such  – notwithstanding that a sponsor may have written off an investment for its own internal purposes, may be required to treat the investment as realized under the distribution waterfall, or may otherwise have fully abandoned the investment as worthless – unless the IRS would permit the sponsor to treat it as worthless under the very stringent terms of 165(g), LPs will continue to pay full management fees on the invested capital associated with that portfolio investment.

We recently negotiated this point for a client, and, to place the issue in context, we asked for a pro forma determination of management fees for the sponsor’s most recent funds calculated by factoring investments that were fully written-off, but not satisfying the stringent IRS standard.  Fund counsel disclosed that management fees would have been multiple millions of dollars lower had such funds used our requested formula.  When asked why the sponsor saw fit to charge full fees on investments that it had otherwise written off entirely, counsel said the sponsor had “hoped” that the companies would ultimately rebound.  In our view, investors should not be made to pay management fees on hope.

Find out more about writeoff terms by contacting any member of our team.

Our Institutional Investors team

Our team of lawyers dedicated to working with institutional investors has grown significantly since we joined DLA Piper in 2018. We are currently 32 lawyers strong: 8 partners, 4 counsel, and 20 associates. Most of us are based in Austin, but we also have a presence in Dallas, Atlanta, Washington, DC and Boston. We have a deep bench!

With our strength in numbers we also have experience in every type of transaction in every sector of the investment funds space, including strong secondary market capabilities on both the buy and sell side of deals. As many of you know, we are closely integrated with a group of colleagues who specialize in tax and ERISA law, and we collaborate frequently on transactions outside of the US with a team of DLA Piper investment funds lawyers based in London, led by James O’Donnell.

Please check out this snapshot of each of our US lawyers and their educational backgrounds.

Associate spotlight: meet Dan Fabian

Dan Fabian is one of our talented associates. Many of you have had the opportunity to work closely with him in recent years. We thought we would give him the chance to share a little about himself through a Q&A:

What’s the story of how you got connected to DLA Piper? How many years have you been working with the Institutional Investors team?

Dan: After working in-house for a few years (in a hybrid commercial and legal role at a beverage company) and exploring various practice areas in a law firm setting (including debt, M&A, manager-side and investor-side private equity work) I decided in 2019 that investor-side representation was what I wanted to focus on exclusively. After scanning the market, the group at DLA Piper was really the only team that stayed on my radar. Thankfully, they had an immediate need. Four years later I’m still glad I made the decision. Back in those days you had to actually move for a new job, which made it somewhat of a risky lateral for me and my family, but for a variety of reasons, I was more than willing to take that risk.

Tell us about your practice and an issue that you’ve been seeing a lot in recent months.

Dan: I focus on primary investments in alternative investment vehicles and have spent a lot of time in the last year on fund-of-ones, separate accounts and other bespoke single-investor arrangements (whether alongside a primary/sponsor vehicle or completely independent of the sponsor’s other products). I am eternally fighting fund expense creep resulting from, as fund counsel puts it, “increased disclosure to investors.”

If you had to go back to school to study in a different field, what would it be?

Dan: I come from a family of firefighters so I think that would be my alternative field of choice (no formal higher education required). It’s a rewarding profession, it comes with a real sense of purpose and it’s a great schedule.

Where are you originally from?

Dan: I was born and raised in Syracuse, New York and I lived in Buffalo for about a decade. I couldn’t stand continuing to watch the Bills lose, which contributed to my decision to move to Austin to join the team in 2019 – and, of course, the Bills haven’t missed the playoffs since.

See these next

Final regulations for the transfer of partnership interests are now in effect. In this alert, we summarize what this means for privately held partnership interests and set out our current views of how the secondaries market is addressing these changes.

The SEC is expanding its ESG focus to the private funds industry. This alert explores why private fund advisers should be paying attention.

Recognized by Chambers

Chambers Global 2023 ranks DLA Piper in Band 1 for its Investor Investment Funds: Investor Representation practice in the US, and singles out seven of our lawyers for individual rankings. See the listings here.


We invite you to share an issue or term you would like us to cover in a future edition of this newsletter. Please contact us via