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Marco Masotti Discusses Contingent Dislocation Fund Triggers and Risks in Private Equity Law Report
March 22, 2022
Private Funds Group Co-Head Marco Masotti spoke with Private Equity Law Report about the mechanisms and downsides of contingent dislocation funds (CDF). In “Contingent Dislocation Funds and Market Disruptions: Unique Mechanisms That Position Them to Pounce (Part Two of Three),” published on March 22, Marco discussed the role of manager discretion when it comes to economic triggers for CDFs, synthetic rollover mechanisms, flexible structures and capital calls triggered by a market dislocation. “The manager is calling the capital in chunks (e.g., 25% at a time), provided it thinks it can deploy those assets pretty quickly in light of the clock on the preferred return ticking and to avoid any cash drag,” Marco said.
In “Contingent Dislocation Funds and Market Disruptions: Suitable Fund Participants and Potential Downsides to Avoid (Part Three of Three),” published on March 29, Marco shared his insights on the potential risks and downsides of CDFs for fund managers and investors, including captive investing, organizational costs and the risk that the CDF will never leave the dormancy period. “Investors need to set aside dry powder for the possibility it could get drawn down by the CDF, so they probably need to put it in something highly liquid that may not necessarily generate material returns,” he said.
The articles are part of a three-part series on the benefits and risks of CDFs. Part one, in which Marco was also featured, can be found here.
» read part two (subscription required)
» read part three (subscription required)