US Fund Managers: Bridging US Deal Execution With Luxembourg Private Fund Governance – New York Office Snippet

US sponsors raising capital from European investors frequently rely on a Luxembourg alternative investment fund (Luxembourg Fund) managed by an EU Host alternative investment fund manager (AIFM).

In such set up the AIFM usually delegates the portfolio management function to a regulated entity as part of the US sponsor group, typically an SEC registered Investment Adviser (PM), pursuant to a portfolio management delegation agreement (PMA).

Within this framework, the PM is responsible for making investment decisions on behalf of the Luxembourg Fund, under supervision of the AIFM. However, the delegation of the portfolio management function does not necessarily imply that the PM will directly execute all transaction documentation relating to portfolio investments.

The Luxembourg Fund is typically structured as a special limited partnership and pursuant to Luxembourg corporate law, the power to bind the Luxembourg Fund rests with its governance body, which is by default the Luxembourg general partner (GP). To facilitate deal execution, the GP may grant a power of attorney (PoA) to the PM. This PoA may be integrated within the PMA or granted on a standalone basis, typically for a limited duration (usually up to 1 year) and limited in scope to actions necessary to implement, manage and dispose of the relevant investment, in accordance with the Luxembourg Fund’s investment policy.

The PoA may also be granted to another US sponsor group entity or certain employees of the US sponsor (e.g. the general counsel), authorising them to execute documentation on behalf of the Luxembourg Fund for the sole purpose of implementing investment decisions that have been validly adopted by the PM.

This mechanism reflects common US deal execution practices, where transaction documentation is often signed by a designated individual or entity other than the investment committee. It allows certain entities or persons to sign and implement transaction documentation on behalf of the Luxembourg Fund, strictly for execution purposes, without granting any discretion or authority to take investment decisions, which remain exclusively vested with the PM. This approach is particularly relevant in parallel fund structures, as it facilitates coordinated execution by enabling the same signatory to bind both the Luxembourg Fund and the parallel US fund vehicle.

In exercising the PoA, the agent acts upon the PM’s instructions and is required to report on its activities to the PM, including by promptly providing the PM with any documentation executed on behalf of the Luxembourg Fund. The PoA is limited to execution and representation and does not constitute a delegation or sub-delegation of the portfolio management function which would conflict with EU private fund rules.

Such arrangements are common features of Luxembourg fund structures used by US sponsors seeking to combine efficient deal execution with compliance with EU regulatory expectations.

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