New Year's Resolutions for the Secondaries Space

As we begin the annual ritual of making our personal New Year’s resolutions, it’s a great time for secondaries market participants to do the same. As we gear up for what is expected to be an active 2024, here are our suggestions for some “New Year Resolutions – Secondaries Style”:

1. Get Your AML/KYC House in Order. You just closed out those 2023 year-end transfers and surely you scrambled with some last-minute and novel anti-money laundering (AML)/know your customer (KYC) requests—special structure charts, new beneficial ownership certifications, updated tax forms, re-certified “this, that and the other.” Take a minute to take stock of those and refresh your AML/KYC packets. Identify fund managers and fund administrators with novel or onerous requests and note them for the file for future transfers. This will make Q1 and beyond that much smoother and hopefully generate some value from the year-end crunch.
2. Transfer Agreement Inventory Update. If you don’t do this already, you should! Keep a repository of the latest and greatest agreed form of transfer agreement with each manager with whom you did a fund transfer. For 2023, update the file with all newly agreed forms. You can dust those off for 2024 trades and hopefully streamline the transfer process just a little bit.
3. 1446. No, not the year. The new 1446(f) withholding rules have been percolating, but Q4 2023 transfers saw a significant uptick in adaptation/focus by sponsors with more sponsors requiring certificates from transferring parties. On the flip side, many sponsors have been willing to provide certificates where the seller is not able to do so itself. During Q1 2024, buyers should take a fresh look at their tax diligence process on withholding, with the lessons from 2023 in mind.
4. Market Check. Last year, you negotiated your purchase and sale agreements. You also agreed to various terms and conditions, including survival periods, indemnification thresholds and caps and various other covenants. Now is a good time to take stock and consider market movements to better prepare you for bidding on those Q1 deals.
5. The Private Fund Advisers Rule (PFAR). If you have not already considered the impact of PFAR on your business, now is the time. The rule will impact the secondaries market in several ways: (i) for those raising secondaries funds, the rules govern things like preferential treatment granted to fund investors (including side-by-side co-investment programs), (ii) for continuation fund sponsors, the rules require procuring a fairness/valuation opinion in connection with a “GP-led secondary” and (iii) the preferential treatment rules may impact the negotiation of lead investor terms in continuation vehicle transactions. Some advance thinking will leave you well prepared.
6. Corporate Transparency Act. Even if we were on the “nice list,” we all got a small lump of coal from Santa at year-end in the form of the Corporate Transparency Act. For secondary buyers, bear in mind the potential application of the Act to deal-specific special purpose vehicles (SPVs) and how best to structure those. There is still considerable uncertainty about whether these types of vehicles are in scope. Now is a good time to make sure this issue is on your radar.
7. Call Your Outside Legal Advisor. Make time for those real New Year’s resolutions and call your outside counsel to get started on the above!

Happy New Year from Akin’s Liquidity Solutions team!

If you need assistance or have questions regarding this article, please contact a member of Akin’s Liquidity Solutions team or your Akin relationship attorney.