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Top Ten Regulatory and Litigation Risks for Private Funds in 2023

Everything, everywhere, all at once, as a descriptor, captures the litigation and regulatory risks for the asset management industry in 2023. Every corner of the market faces greater risks than at any time since 2008. After years of breakneck growth fueled by low interest rates and a largely laissez faire regulatory regime, significant change is here.

The major reasons are straight-forward. Long-held investment assumptions stopped being true in 2022. Hopes for a post-COVID “return to normal” faded quickly as inflation reached levels not seen in more than 40 years. In response, central banks rapidly raised interest rates. Meanwhile, geopolitical tensions have intensified to – and remain at – levels not seen since the Cold War. Russia’s invasion of Ukraine quickly escalated into Western sanctions and Russian responses, resulting in energy shocks and further inflation. For its part, China has shifted its industrial policy, tightening down on technology companies, and flexed its military power, while increasingly aligning itself with Russia.

Meanwhile, the meltdown of crypto has unleashed a torrent of bankruptcies, litigation, and criminal proceedings; the long-predicted “wave” of SPAC litigation is cresting in light of a recent court decision; disputes involving ESG now extend far beyond investigations of greenwashing, and include governance battles and political skirmishes – arenas where most asset managers fear to tread; portfolio company valuations are returning to earth, with the best evidence being the Vision Fund’s repeated multibillion dollar write-downs and losses.  These events seem almost quaint in light of recent developments, but they contributed to more recent crises and are leading to down rounds, lower performance expectations, elongated fund-raising cycles, higher operating costs, and increasing tensions at all levels (sponsors, LPs, and portfolio companies).  The pressure on sponsors will be significant.

We have been writing about, and anticipating, these risks for years – with regular posts on crypto, SPACs, and valuations – among others – dating back to 2017. For example Regulatory Shake-Out on Digital Assets: An Industry Waits for Additional GuidanceU.S. Federal Regulators Turn Up the Heat on Cryptocurrency Trading Platforms; and SEC Proposes Extensive New Rules Applicable to SPACs and de-SPAC Transactions.

We have also been writing about strategies for mitigating these risks and developing playbooks for addressing them when they arrive. Some of these publications include: Portfolio Company Risk: Plaintiffs Set Sights on Sponsors and Board Directors; and The Portfolio Company Playbook – Chapter 1: A Fund Sponsor’s Guide to Navigating Risks, Conflicts, and Regulatory Concerns Arising from Portfolio Companies.

As is often the case with any fundamental dislocation, market disruption provides fertile ground for innovation and renewal. Indeed, in the midst of these challenges, the launch and continued advancement of Chat GPT and competing generative AI tools have already sparked new excitement and energy.  In fact, it may signal the birth of a new investment cycle much like Netscape Explorer launched the original internet boom (amidst the lingering hangover from the “decade of greed”), and “my Space” helped launch the social media phenomenon and Web 2.0 (fresh on the heels of the bursting of the internet bubble in 2001). We wrote this introduction before SVB filed for bankruptcy, the failure of Signature Bank, and the rescue merger of Credit Suisse. Further disruption is virtually certain.

With this backdrop, we are pleased to present the Top Ten Regulatory and Litigation Risks for Private Funds in 2023.

In the coming weeks, we will release posts on each of these topics.

Joshua M. Newville, Todd J. Ohlms, Robert Pommer, Seetha Ramachandran, Robert Sutton, John Verwey, Jonathan M. Weiss, Julia Alonzo, Julia M. Ansanelli, Charles Bishop, Massimo B. Capizzi, William D. Dalsen, Adam L. Deming, Reut N. Samuels, Michael Singh and Hena M. Vora also contributed to this article. 

© 2023 Proskauer Rose LLP. National Law Review, Volume XIII, Number 81

About this Author

Margaret A Dale, Commercial Litigation, Proskauer Rose Law Firm

Margaret Dale is a Partner in the Litigation Department, resident in the New York office. Her practice focuses on commercial litigation, including class action defense, as well as intellectual property, privacy and data security, corporate governance litigation, securities litigation, and regulatory and internal investigations. She also represents and counsels clients in art law matters. 

Michael R. Hackett, Litigation Attorney, Proskauer Law Firm

Michael R. Hackett is an associate in the Litigation Department and a member of the Asset Management Litigation practice. His practice focuses on disputes and regulation involving private funds, including private equity, venture capital, hedge, real estate and private credit funds, as well as other limited partnerships, where he regularly advises funds, fund sponsors, investment advisers and institutional and individual investors.

Mike’s experience representing private fund clients runs the gamut, from control contests within advisers, to...

William Komaroff Litigation White Collar Attorney Proskauer Law Firm New York

Bill Komaroff is a partner in the Litigation Department and White Collar Practice Group. He has a nationwide federal practice focused on corporate defense and investigations, counseling and defending institutional and individual clients in connection with a broad array of complex government investigations, prosecutions and civil disputes.

Bill also has served as a member of the Criminal Justice Act Panel for the District Court for the Southern District of New York.

From 2003 to 2007, Bill served as an Assistant U.S....

Nathan R Lander, Insurance Attorney, Proskauer Rose Law Firm
Senior Counsel

Nathan Lander is a senior Associate in the Litigation Department and Insurance Recovery & Counseling Group, resident in the New York office. He has extensive experience representing policyholders in disputes with their insurance companies, and litigating insurance coverage issues in federal and state courts around the country.

Timothy W. Mungovan, Litigation Attorney, Proskauer Law Firm

Timothy Mungovan is a Partner in the Litigation Department, co-head of the Private Investment Funds Disputes practice and a member of the Private Investment Funds Group. Tim has an international practice in complex commercial litigation, advising public and private companies in a variety of areas, including securities, corporate governance, fiduciary obligations, investment management and financial services, fraud and trade secrets.

In addition to his regular commercial litigation practice, Tim focuses on disputes involving private investment...

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