Legal considerations regarding private equity funds with alternative investment strategies
In recent years, an increasing number of private equity funds and financial sponsors are adopting alternative investment strategies different from traditional buyouts, and many traditional funds have redefined or diversified their strategies and products. On the one hand, companies are increasingly seeking the alternative financing offered by this type of funds in transaction structures that allow them to retain control. On the other hand, the need to stand out in a competitive environment, to gain exclusive transactions and avoid bidding processes, is also a factor that is compelling funds to be more creative when generating opportunities and designing investment structures.
Further, such alternative strategies will most often result in innovative structures and instruments (minority investments, preferred equity, hybrid debt / equity instruments) since they are often more flexible and can be adapted to the company’s needs and to the risk profile and return targets of different types of investors.
However, these instruments must be used cautiously and with full awareness of how they differ from traditional capital investments, particularly in anticipation of potential conflicts, events of default, financial difficulties or insolvency scenarios. This is particularly important for foreign investors and funds, given the differences between regulations applicable to a given instrument under Spanish law and its equivalent in other jurisdictions.
In the attached document, we analyze some of these alternative strategies and instruments.