Langham Hall is delighted to have supported Hypha with the launch of their inaugural private equity fund, Hypha I LP, which is targeting commitments of £100m. The fund will make investments in founder-owned businesses in the UK and Ireland, with a focus on the healthcare, technology and advanced manufacturing sectors. The fund has so far secured over £70m in commitments from global institutional investors.

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Langham Hall has been selected to provide fund administration and appointed representative services from our London office.

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Commenting on the launch, Founding Partner Matthew Pomroy said “Langham Hall has been an excellent partner to us as we launch this new business. Their advice and handholding throughout our setup was invaluable, and they have delivered on their promises throughout.”

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Head of Commercial, Tom Pinnell commented “As one of the leading fund administrators for spin-out and startup managers, we have thoroughly enjoyed going on the journey with Hypha as they launch Fund I, and we look forward to seeing their success in years to come.”

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About Hypha

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Hypha is a UK private equity fund founded in 2024, investing in businesses across three core sectors of technology, healthcare and advanced manufacturing. It supports founder-owned businesses to grow into significant players in their market, partnering with teams that can benefit from experienced, supportive investors. Hypha do the simple things well, helping to put the structures in place to support accelerated growth. Hypha can invest in buyout or growth capital transactions into companies generating positive EBITDA, with the ability to take minority and majority shareholdings.

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Langham Hall is pleased to announce its role as the fund administrator for Phoenix Equity Partners’ latest flagship private equity fund and the newly launched Growth Partnership Fund. Phoenix has successfully secured over £600 million in new commitments, with £400 million allocated to the flagship fund and an additional £200 million dedicated to the Growth Partnership Fund.

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Phoenix’s flagship fund will continue its strategy of investing in high-growth, lower mid-market businesses across select sectors in the UK. The Growth Partnership Fund, on the other hand, represents a strategic move to deepen partnerships with two of Phoenix’s high-performing portfolio companies, Nineteen Group and Envisage Dental. Both companies were acquired from Phoenix’s previous flagship fund, demonstrating strong growth and success under Phoenix’s management, with a combined enterprise value now approaching £450 million.

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As the fund administrator, Langham Hall worked closely with Phoenix Equity Partners and their legal advisors to ensure the smooth and compliant establishment of both funds. Our team provided comprehensive support throughout the process, from structuring and regulatory approval to the seamless onboarding of investors. The successful closing of these funds is a testament to the strength of the partnership between Phoenix, Langham Hall, and Carey Olsen.

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Jon Young, Head of Guernsey said: “We are delighted to have supported Phoenix Equity Partners in the closing of their latest funds. This achievement underscores Phoenix’s continued ability to attract significant investor interest and highlights the strength of Guernsey as a premier jurisdiction for private equity funds. Langham Hall is proud to be a part of Phoenix’s ongoing success and looks forward to supporting their future growth and investment strategies.”

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The successful closing of these funds enables Phoenix to continue its focus on backing UK-based businesses and entrepreneurs, reinforcing its position as a leading investor in the lower mid-market. Langham Hall is proud to support Phoenix in their mission to help businesses achieve their growth potential.

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Louise Corner, Partner and Chief Operating Officer at Phoenix said: “It’s been a busy year for Phoenix, and the Langham Hall team have gone to great lengths to support the successful closing of our funds. We’re delighted to be supported by such a dedicated and responsive fund administration team and by the professional ecosystem of fund advisers that exists in Guernsey.”

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Langham Hall are committed to providing high-quality fund administration services that facilitate efficient fund operations and robust investor relations. Our partnership with Phoenix Equity Partners exemplifies our dedication to supporting innovative investment strategies and our role as a trusted partner in the private equity landscape.

The past few years have seen a marked decline in fundraising, with GPs finding it tougher to raise new capital in light of the wider economic environment. One consequence of this we have seen is that managers are needing to be increasingly innovative with their fund terms to provide more flexibility to investors, with increasing numbers of side letters and complex waterfall models becoming more common.

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Carried interest (often known simply as “carry”) represents the share of fund profits that the General Partner (‘GP’) will receive based on the value ultimately realised from the fund’s portfolio. Carry is in essence, a performance fee and is designed to ensure the GP has a meaningful commitment to the fund and is aligned with the interests of the Limited Partners.

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The application of the carry concept is governed by the provisions of the Limited Partnership Agreement (‘LPA’), drafted by the fund’s legal counsel, and typically applies a waterfall model to define the order of priority in which profits are distributed between parties. The wording of the carry provision often provides for a degree of subjectivity, and this can present challenges for a GP when implementing in practice.

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In this article we look at the practical considerations for first-time GPs when selecting the carried interest mechanics for their fund.

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Understanding the waterfall model in Private Equity

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The distribution model is often referred to as a “waterfall’ as it defines the order of priority in which distributions are allocated within the context of the overall profit-sharing (or ‘carry’) arrangement. The term waterfall can conjure up images of sizeable and overly complex spreadsheet calculations however understanding the overall objective makes these models much easier to digest and implement in practice.

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In a typical waterfall model the GP will be entitled to a portion of fund profits (commonly 20%) but this will be allocated only after the Limited Partners have been returned any outstanding capital plus a ‘preferred’ return. The prioritisation of Limited Partner returns results in the need for a GP catch up before any remaining profits are distributed in line with the overall profit-sharing arrangement (e.g. 20:80 split).

European vs US Waterfall Model: Key Differences

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There are two widely accepted applications of the waterfall model, the US (or deal-by-deal) model and the European (or whole fund) model. The concept is similar under both, however the European model considers cumulative contributions and realisation proceeds whilst the US model considers contributions and realisation proceeds specific to each deal. Under the US model there is no offset between “good” and “bad” deals and a mechanism is required to allocate fund level expenses and management fees to each individual deal; tracking investors pro-rata share of each deal is critical. The European model aims to provide the same overall distribution split by the time of the final distribution, however low-return deals towards the end of the fund’s life bring a greater risk of claw-back. It is important for GPs to consider industry standards and Limited Partner expectations when deciding on the preferred approach.

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Role of Preferred return in Private Equity

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The preferred return (or ‘hurdle’) is a component of the waterfall model which ensures that the Limited Partners receive their share of fund profits in priority to the GP. This offers some protection to the Limited Partners if profits aren’t sufficient to achieve the overall profit-sharing arrangement and ensures they are rewarded as a priority in return for risking their capital. The preferred return is calculated based on capital contributed and typically at a rate of 8% compounding annually from the effective date of contribution.

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Practical considerations for carried interest

• Investor-Specific vs. Aggregate Waterfall Application – will the waterfall model be applied on an investor-by-investor basis or aggregated at a fund level? Investor specific side letters are becoming more common place amongst institutional investors and this in addition to excused investor and Family & Friends provisions can make the application of an aggregate model difficult to apply in practice.
• Preferred return – at what point should the preferred return stop accruing? In a European model it is typical for the preferred return to align with the timing of distributions i.e. as outstanding capital contributions are returned the preferred return on those contributions will cease to accrue. The preferred return will then continue to accrue on outstanding contributions until the point where distributions exceed outstanding capital as a whole.
• Subsequent fund closing – on what basis does the preferred return accrue for subsequent investors admitted after the initial close? In the spirit of being fair and equitable, GP’s will typically apply the same approach as capital equalisations; the preferred return is calculated from the date the subsequent investors drawdown would have been due had they been in the fund from the initial close. For the wider investor base the preferred return is typically applied to an investors equalised capital contribution.
• Recycling provisions – how are recycling provisions applied in the calculation of the preferred return? For example, if amounts available for distribution are retained by the fund to cover operating expenses or follow-on investments are these considered to be recycled under the LPA and how do these amounts increase the base for the preferred return calculation? Are preferred return provisions applied in the same way to amounts drawn over and above total commitment where allowed under the LPA? The LPA will clearly detail the funds’ recycling provisions however the impact on distributions and the preferred return is not always explicit.
• Systems – it is important that GPs have a proper technology strategy which is aligned to the calculation of the waterfall. There is a risk with complex calculations that either the manager, or in the case of an outsourced arrangement, the administrator, could make errors which ultimately affect investor returns. Langham Hall uses computable data to mitigate this risk, and allow us to handle complex waterfall calculations throughout the fund lifecycle.

If you are a first time GP wanting to understand the practical implications of an existing or proposed carry model, Langham Hall has a wealth of experience working with our clients and their service providers to define and interpret complex carry provisions and build quantitative models to support decision making.

Pride Month is a, month-long celebration dedicated to the LGBTQ+ community, commemorating their history, struggles, and achievements. The origins of Pride trace back to the United States in 1969, following the Stonewall riots—a series of pivotal protests that ignited the gay liberation movement.

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The Stonewall riots began on the 28th June 1969, when the NYPD raided the Stonewall Inn, a gay bar in Greenwich Village, Manhattan. The raid sparked a series of riots by the LGBTQ+ community, who were fed up with the constant harassment and discrimination they faced. These riots marked a significant turning point, transforming the fight for gay rights into a widespread movement.

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In June 1970, the first Pride marches were held in New York, Los Angeles, San Francisco, and Chicago to commemorate the anniversary of the Stonewall riots. These marches aimed to continue pushing for the liberation and rights of the LGBTQ+ community. They were a huge success with turn outs of over 3,000 to 5,000 people.

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Pride Around the World

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Since the success of the Pride Marches in the USA, Pride celebrations have spread globally, with events taking place in various places across all months. These celebrations often include parades, festivals, and educational events, all aimed at promoting LGBTQ+ rights and visibility.

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Channel Islands Pride

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In the Channel Islands, Pride is celebrated in September.

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The creation of Channel Islands Pride was rooted in the fight for same-sex marriage laws. The first Pride event in Jersey took place in 2015, followed by Guernsey in 2016. Since then, the islands have taken turns hosting the event, fostering a sense of community and solidarity. Same sex marriage was then made legal in May 2017 in Guernsey and July 2018 in Jersey.

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Channel Islands Pride has grown to become a significant event, featuring parades, performances, and various activities that celebrate diversity and promote equality. It serves as a reminder of the ongoing struggle for LGBTQ+ rights and the importance of standing together in solidarity.

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We spoke to some of our colleagues in the Challenge Islands, who form part of the movement for their insight:

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Zoe Harris - Langham Hall Guernsey said: “As allies we stand with the LGBTQ+ community, advocating for justice, celebrating love, diversity, and equality. Pride is a great platform for raising awareness about LGBTQ+ rights and a powerful celebration of identity and progress whilst continuing to push for a more equal world. Everyone deserves to feel safe and free to express themselves.”

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Colleague - Langham Hall Jersey said: “Pride holds deep significance, carrying an important message for all communities, regardless of gender, political views, sexual orientation, or religion. Pride represents the ongoing fight for peace and love. While the Channel Islands may enjoy certain privileges, we often forget why Pride is still celebrated. We must remember that these privileges are the result of a long and difficult battle. Many countries around the world do not share this same freedom. We are still far from achieving full equality, even here in the Channel Islands. In some parts of the world, simply being who I am could cost me my life or result in imprisonment. In 64 countries, it’s considered a crime. In 12 countries, I could face the death penalty. Meanwhile, only 32 countries have legalised same-sex marriage, and just 4 have banned conversion therapy. So, let’s celebrate the freedom to be ourselves and show the world that love is love. Let’s continue to embrace tolerance, respect, and acceptance for one another.”

Langham Hall is proud to have supported Sarasin Bread Street with the successful launch of its inaugural Bread Street Multi Vintage Private Equity Fund (‘MVPE Fund’), which has secured €124 million in investor commitments.

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This fund is the first private equity strategy raised by Sarasin Bread Street following the leadership team’s move to Sarasin & Partners LLP in 2022. The MVPE Fund has attracted significant interest from a broad range of investors, including family offices, UHNW investors, charities, and specialist private equity secondary funds. Its unique single-manager, multi-vintage approach provides investors with access to a diversified portfolio of private company investments managed by global investment firm Carlyle, spanning vintage years from 2014 to 2024. Additionally, the MVPE Fund will make a primary commitment to Carlyle’s Corporate Private Equity platform, enhancing its exposure to blue-chip private equity opportunities.

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A key feature of the MVPE Fund is its use of a €33 million working capital facility provided by Natixis Corporate & Investment Banking. This facility, secured through a Guernsey security package, enables the MVPE Fund to efficiently manage capital deployment, enhancing its overall return profile for investors.

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Langham Hall has been selected to provide fund accounting and administration services from our Guernsey office. Leveraging our experience as a leading fund administrator, we provided comprehensive support in establishing the fund vehicles and the general partner structure, obtaining necessary regulatory approvals from the Guernsey Financial Services Commission, and overseeing the fund’s first close.

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Alex Barr, Head of Sarasin Bread Street added: “Langham Hall have proved to be a knowledgeable and supportive partner through the fund and capital formation processes for the MVPE fund and we particularly value the seamless connectivity between their Guernsey and London operations.”

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We look forward to continuing our partnership with Sarasin Bread Street as they expand their innovative fund offerings, delivering unique investment opportunities that align with long-term market themes.

Europe has increasingly become an attractive fundraising location for non-EU fund sponsors looking to expand their investor reach. Many will consider setting up a European parallel fund to sit alongside their main fund. Operating in Europe means complying with the Alternative Investment Fund Managers Directive (‘AIFMD’), which comes with a number of operating requirements that some sponsors may not be familiar with.

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One such requirement we have increasingly discussed with non-EU sponsors is an obligation to comply with, and disclose remuneration figures to investors. This may sound alarming at first glance, but here we will dig into what this actually means in practice.

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Is your Luxembourg parallel fund in scope?

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EU Host Alternative Investment Fund Managers (‘AIFM’) have four core functions: portfolio management, risk management, valuation verification and general overall fiduciary duty in respect of the fund operations. With US fund sponsors who are Securities and Exchange Commission regulated, the portfolio management can be delegated. Delegation means the AIFM remains ultimately responsible but provides via a delegation agreement, a regulated third party with certain powers and responsibilities subject to oversight by the AIFM.

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While the delegated portfolio manager is now able to take investment and divestment decisions for the Luxembourg fund, it must also subject itself to compliance of the requirements under AIFMD, the primary legislation in the EU setting out the framework for managing a private markets fund. The legislation requires (amongst other matters) that the entities to which portfolio management have been delegated are subject to regulatory requirements on remuneration that are equally as effective as those applicable under the AIFMD.

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Remuneration is usually disclosed in the unaudited section of the accounts. Where the AIFM has delegated the portfolio management function, this will need to include the portfolio manager’s remuneration details as set out below.

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Remuneration information needs to be disclosed under the AIFM Directives

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The remuneration disclosure essentially consists of the headcount of the personnel involved in portfolio management activity, the total remuneration, the fixed remuneration and the variable remuneration.

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Since the portfolio management activity usually involves a larger group of people, the remuneration of single individuals is not identifiable for external parties. The methodology for calculation of the amount of fixed and variable remuneration for disclosure should be subject to a policy agreed upfront between the AIFM and the portfolio manager.

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ESMA Guidelines for staff remuneration disclosure

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The European Securities and Markets Authority (‘ESMA’) offers guidance on how to determine the relevant groups of staff (Identified Staff). Essentially, the remuneration shall include staff that have a material impact on risk profile of the AIFM and/or the AIF.

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This includes board managers and senior management of the AIFM, control functions (risk management, compliance, internal audit and similar functions), other risk takers and portfolio management or risk management activities that have been delegated by the AIFM.

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For portfolio managers, the identified staff refers to personnel that have a material impact on the Luxembourg fund’s risk profile.

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What are the challenges with the AIFMD Regulation?

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Remuneration disclosures appear to surprise non-EU portfolio managers when they are initially brought up. There is obviously no equivalent in markets outside of Europe where private funds can often operate with little to no regulatory disclosure requirements on this topic.

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While it might be easier to identify the relevant staff in the host AIFM entity, in large US organisations, there are often many teams that have direct or indirect impact on the risk profile of the Luxembourg fund. In addition, they usually dedicate only a small part of their time to the Luxembourg fund.

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Best practices to deal with this AIFMD Reporting requirement

• At the outset, non-EU fund sponsors using a EU Host AIFM should discuss what is required with their proposed AIFM and also Luxembourg legal counsel to determine the best way to comply with the reporting requirements. This can depend on the organisation and business of the non-EU portfolio manager.
• Set up policies and procedures during onboarding which have been agreed by the Luxembourg Counsel and EU Host AIFM.
• Discuss the audit process with your fund administrator, auditor and AIFM team in advance.
• Ensure calculations are based on rational analysis in accordance with the agreed policy and applied consistently.

At first glance, for non-EU sponsors that have not operated in Europe before, the requirement to disclose remuneration to investors may seem daunting. However, the practical reality of this issue is that remuneration is not required to be disclosed on a personal basis. We regularly discuss this, and other issues with sponsors looking to operate in Europe for the first time, and will gladly share our experience as required.

Langham Hall is committed to giving back to the communities in which it operates. We champion our staff to be involved in a variety of activities to widen their life experiences and perspectives.

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During the first half of 2024, our staff have undertaken a wide range of charity and fundraising activities, ranging from a team kickabout in support of Autism Jersey to taking on the Pretty Muddy obstacle course challenge in aid of Cancer Research UK.

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Check out what our teams have been up to:

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Guernsey

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Over the first quarter of the year Guernsey have taken part in a variety of charity and fundraising initiatives to continue to support Guernsey Alzheimer’s Association. During early June, staff took part in “The Saffery Rotary Walk” a 39-mile route following the coastline of Guernsey. The initiative raised money for 21 local charities including Guernsey Alzheimer’s Association, Autism Guernsey, Guernsey Chest and Heart LBG.

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A team of volunteers have also been contributing to the literacy programme for Bright Beginnings, a scheme dedicated to listening to children read once a week to help them develop their learning. The volunteering allows staff to take a break from a busy day to try something completely different, as well as give back to the community.

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In the second quarter of the year, Guernsey selected their ‘charity of the year’: The Sunflower Project, a support service for children and young people who are experiencing bereavement. The People Committee started the fundraising efforts with a bake sale raining £133. They will continue to coordinate other initiatives to raise additional funds for the charity.

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Jersey

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During July some of the Jersey team participated in the James Keating Football Charity Tournament in support of Autism Jersey. The team performed exceptionally well, especially considering it was their first time playing together. They displayed remarkable teamwork and determination, making it all the way to the semi-finals!

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We are proud to continue being a corporate partner for Dementia Jersey and are grateful to have been invited to attend their Government House afternoon tea event in June. We donated a Relish hamper to the raffle to support the event.

As an ongoing partner of Dementia Jersey, the team are continually exploring ways to support their important work. Recently, they had the pleasure of hosting members of the Dementia Jersey team at the office for an enlightening seminar on the daily operations of the charity. In a show of support the Jersey office donned their purple and raised £157 in donations.

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London

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In early June some volunteers from the London office took part in the Pretty Muddy 5k challenge in aid of Cancer Research UK. The team raised over £1500 and had great fun getting muddy for a good cause.

The office also made donations on behalf of the business and staff.

• Donations to The Girl’s Network whose mission is to inspire and empower girls from disadvantaged backgrounds
• Support for families fleeing conflict in Sudan
• Donations to the Neonatal Unit at St George’s Hospital, Tooting
• Donations to the Pretty Muddy Langham Hall Group
• Donations to the Mind Out for Pride Month

We also encourage our staff across all jurisdictions to take on their own challenges and initiatives.

• Ben Ramsey from London took part in the Brighton Marathon raising funds for Samual’s Promise
• Ashley Dunkley from London took part in the 8,000 steps a day challenge during the month of March, in aid of Tommy’s.

We look forward to all the different initiatives the teams have planned for the rest of 2024.

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We are proud to stand together and extend a helping hand to those in need.

Richard James has been appointed as Head of UK, bringing over 20 years’ experience in investment management to Langham Hall.

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Previously Richard was Global CFO for Savills Investment Management, a global fund manager investing in Real Assets and Credit. Here he was responsible for both fund and corporate finance, tax, treasury and operations across the business. During his tenure, he was part of the leadership team that drove AUM growth from £3bn to over £20bn. Before Savills Investment Management, Richard worked at Internos, AEW, and Ares. He began his career at EY, where he also obtained his professional qualification. Richard’s invaluable client-side experience and proven leadership make him a significant asset to Langham Hall.

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Richard James, Head of UK said: “I am very excited to be joining such a highly respected business which is becoming increasingly unique in this market”

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Rob Short, Managing Partner said: “I am delighted that Richard has joined us to continue to deliver best-in-class professional services to our clients”

Following a prolonged period of difficult fundraising conditions, many GPs we speak to are planning to be back in the market during Q4 2024 / Q1 2025. As we have observed over recent years, Europe will be increasingly important for many. Some are familiar with AIFMD and how to navigate the requirements which govern marketing to institutional investors in Europe; others are considering Europe for the first time. We have set out below a brief summary of the key questions and considerations.

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1. Isn’t fundraising in Europe difficult?

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AIFMD, the regulation which governs marketing in Europe, has now been in place for over a decade. Whilst not without some complexity, the reality is that marketing private funds in Europe is more straightforward than many first fear. Regulatory fund counsel take care of all the registrations, and service providers pick up most of the operational lift. The ability to pre-market also makes marketing efforts more focussed than in the past.

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2. What are the options?

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There are two – marketing a non-EU fund, i.e. Delaware LP, via the National Private Placement Regime (NPPR), or marketing an EU fund, i.e. Luxembourg LP.

• NPPR means targeting a selection of countries. It is operationally easier, but you cannot access all of Europe. This is still Route 1 for the majority of North American GPs looking for European LPs. We have many clients successfully raising capital in this way.
• A Lux fund gives you access to the European marketing passport. It is operationally heavier and more costly, but potentially gives you access to more capital. Larger GPs and those with European presence might find this a better fit.

3. What are my peers doing?

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The majority of North American GPs raising capital in Europe do so via NPPR. Many have done so for multiple vintages of multiple strategies. Lux is of great interest to many, but most can raise enough via NPPR to not require a separate European structure. We have observed this changing over time and see more Lux funds each year.

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4. How do I choose which option is best?

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To best map out the market and assess LP demand, we would recommend using our Hosted Pre-marketing service. This allows you to “pre-market” your product to European LPs, ahead of establishing any potential European substance. If demand doesn’t warrant a full Lux fund, you can decide instead to market via NPPR.

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5. How long does this all take?

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Pre-marketing can be up and running within 2-4 weeks, most will use it for 3-4 months (or longer). NPPR applications can take between a few days to 6 weeks in most countries that allow it, but Denmark may take longer to be proved, depending on the jurisdiction. A Lux fund can be established and up and running in three months.

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6. NPPR sounds good, what do I need for that?

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Once you have decided which countries to market in, your regulatory funds counsel will assist with the marketing applications. There will be ongoing reporting requirements in each country also. These are known as “annex IV” reports, and are similar to Form PF. Langham Hall will take care of these. If Germany and Denmark are on the list you’ll need to name a depositary-lite provider in your marketing applications. Langham Hall can also assist with that.

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7. I like the idea of Lux vehicle, what does that entail though?

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For a Lux fund you will need a host-AIFM, fund admin and depositary. Langham Hall can provide all of this from our 250 person office in Luxembourg.

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8. What about the cost?

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Pre-marketing is very cost effective. NPPR is also relatively inexpensive. A Lux fund should be targeting €200m minimum to be cost effective.

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9. How do I find out more?

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If you’d like to hear more, drop us a line and we’d love to speak further. You’ll only speak to partners and practitioners, no sales people, so we know what we are talking about and can help you work out what the best approach would be for you.