Seeking a buffer from anticipated tax-law changes, private equity firms are injecting open-ended language into their fund documents allowing for revisions of the vehicles' partnership structures.
The clauses have been popping up with increasing frequency in recent months, and generally state that a manager reserves the right to legally restructure its operations or its fund in the event of a tax-law overhaul.
"Many funds being raised today have the ability to amend their fund documentation in a way that may provide a better tax result to the general partner if the legislation passes," said Kirkland & Ellis attorney Bruce Ettelson. "But it's more likely than not that there would be barriers to changing the structure of an existing fund."
This article appeared in its entirety in the November 14, 2007 edition of Private Equity Insider.