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Limited recourse: Difference between revisions
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==[[Investment fund]]s== | ==[[Investment fund]]s== | ||
Where you are facing an [[investment fund]] held by equity investors it is slightly — but not very — different. Generally, there is no [[Security interest|security]], since there’s no question of [[ring-fencing]] separate pools of assets. (But [[investment manager]]s can get in the way and steal options, so be on your guard — see below). | Where you are facing an [[investment fund]] held by equity investors it is slightly — but not very — different. Generally, there is no [[Security interest|security]], since there’s no question of [[ring-fencing]] separate pools of assets. (But [[investment manager]]s can get in the way and steal options, so be on your guard — see below). | ||
'''Limiting recourse to the fund’s entire pool of assets''': A provision which says “once all the fund’s assets are gone, you can’t put it into bankruptcy”, | '''Limiting recourse to the fund’s entire pool of assets''': A provision which says “once all the fund’s assets are gone, you can’t put it into bankruptcy”, ''looks'' harmless, seeing as once all the fund’s assets are gone there’s no ''point'' putting it into [[bankruptcy]]. This is the same place you would be with a single-issue [[repackaging]] vehicle: the [[corporate veil]] does the work anyway. This provision just keeps the directors of the fund in paid employment. But there’s a subtle cast on this. With no security, and no co-ordination of creditors that is typical of a structured finance deal, with security, a priority of creditors, covenants not to create any other indebtedness and so on, the ecosystem is very much mapped and controlled. In an investment fund, it isn’t. The creditors (competing brokers, prime brokers, swap counterparties, futures clearers and so on) have no idea what each is doing, and there are real benefits to them in the insolvency rules ensuring fair and equitable treatment of creditors in insolvency. The Archegos situation (which as far as I know didn’t involved limited recourse, by the way) illustrates this dynamic pretty well. | ||
==Limiting recourse to a pool managed by an [[agent]]== | ==Limiting recourse to a pool managed by an [[agent]]== | ||