Introduction

As the private equity asset class continues to expand2 and private equity fund managers respond to demand by investors for ever-more bespoke products and tailored investments, there has been an increase in the use of alternative fund structures to accommodate such demand. In addition to the proliferation of separate accounts, funds-of-one and co-investment structures, the use of vehicles that employ series, cell or other asset and liability segregation technology has increased, bringing with it opportunities and potential challenges when leverage at the fund or individual series level is sought.

The use of series in a limited liability company (a “Series LLC”)3 offers many potential benefits to a private equity fund (a “Fund”) manager and its investors; however, for lenders interested in advancing credit to a Series LLC or a series thereof, it is important to understand how Series LLCs differ from traditional forms of limited liability entities. This article discusses the nature and benefits of Series Entities in the private equity context4, as well as potential issues that lenders will want to take into account when considering advancing credit to a series under a Series Entities secured by investor capital commitments.5

Background

A Series LLC is generally created pursuant to the laws of the applicable jurisdiction of formation. A defining feature of a Series LLC is the ability to create an unlimited number of segregated subunits or series (each, a “Series”) under the umbrella of a single “master” LLC (or LP), permitting each Series to have separate members, managers, equity interests, assets, liabilities and business objectives associated to it, with an internal liability shield as among the Series that is intended to be enforceable against creditors and other counterparties. This is in contrast to a traditional limited liability company, which may have different classes of members that have different...