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Portrait of Patrick Groves

Patrick Groves

Partner

Contact
CMS Cameron McKenna Nabarro Olswang LLP
Cannon Place
78 Cannon Street
London
EC4N 6AF
United Kingdom
Languages English

Patrick has particular experience in the structuring and launch of closed and open-ended Pan-European and UK alternative investment funds, with a particular focus on the real estate, debt, infrastructure and renewables sectors. His practice also includes clubs, co-investments, complex multi-party joint ventures and downstream investments, as well as the full range of fund advisory matters such as co-invest and carried interest arrangements and investor advisory work. Patrick’s clients include a range of institutional, private equity and boutique fund managers and investors.

Patrick is recognised as a Next Generation Partner for real estate investment funds by the Legal 500 2022 and as an Up and Coming partner by Chambers 2022. He is also a member of AREF’s (the Association of Real Estate Funds) Education & Training Committee and was previously a founding member of AREF’s FutureGen Committee.

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"Patrick Groves is a stand out lawyer. He’s patient, thoughtful and succinct, both in his interactions with you and his legal drafting. He can take a complex problem apart, suggest a way to deal with it, listen carefully to your opinion, and work collaboratively with you to agree a way forward. A rare beast indeed."

Legal 500, 2022

"Patrick Groves is well respected for his practice advising large real estate funds on a range of mandates, including closed and open-ended fund launches and restructurings."

Chambers, 2022

"Patrick is always responsive."

Chambers, 2022

"He gives great advice, and has the ability to deal with deadlines and coordinate complicated projects."

Chambers, 2022

Education

  • 2010 – Legal Practice Course (Distinction), Kaplan Law School, London
  • 2008 – Graduate Diploma in Law (Commendation), BPP Law School, London
  • 2007 – History BA, University of Bristol
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19/02/2021
Open-ended prop­erty funds and pri­cing
In­tro­duc­tion In sim­pli­fied terms, an open-ended fund typ­ic­ally has a vari­able amount of cap­it­al and an un­lim­ited lifespan, with in­vestors able to sub­scribe (pur­chase) and re­deem (with­draw) their in­terests through­out the life of the fund based on its pre­vail­ing un­der­ly­ing value.In con­trast, a closed-ended fund gen­er­ally has a fixed term, with new sub­scrip­tions lim­ited to an ini­tial fun­drais­ing peri­od and in­vestors hav­ing no right to re­deem their in­terests dur­ing the fund’s life. In­vestors are there­fore largely re­li­ant on real­isa­tions by the fund or trans­fer­ring their in­terests on the sec­ond­ary mar­ket to achieve a re­turn of cap­it­al.While open-ended funds are there­fore gen­er­ally de­scribed as be­ing more “li­quid” than closed-ended funds, this does not tell the whole story. Open-ended real es­tate funds are – ow­ing to the com­plex nature of prop­erty trans­ac­tions – in­her­ently less li­quid than funds in­vest­ing in more read­ily traded as­sets such as lis­ted equit­ies and bonds. Fur­ther, in con­trast to freely traded se­cur­it­ies which are openly priced on a daily basis, the pro­cess of valu­ing real es­tate is both time and cost in­tens­ive and prop­er­ties are there­fore val­ued less fre­quently (of­ten quarterly or even an­nu­ally).When com­bined with the in­her­ently sub­ject­ive nature of prop­erty valu­ations, the price at which in­vestors buy and sell in­terests in open-ended prop­erty funds has there­fore been the sub­ject of much de­bate with­in the in­dustry. The con­ver­sa­tion par­tic­u­larly in­tens­i­fied in the wake of the 2007-2008 glob­al fin­an­cial crisis and the 2016 Brexit vote, where fund man­agers sus­pen­ded re­demp­tions to stave off un­pre­ced­en­ted in­vestor de­mand for with­draw­als. For fur­ther in­form­a­tion on the meth­ods used by prop­erty fund man­agers to man­age li­quid­ity, please see our brief­ing: Back to ba­sics: Open-ended prop­erty funds and li­quid­ity.At the time of pub­lic­a­tion of this art­icle, the sig­ni­fic­ant un­cer­tainty in glob­al mar­kets caused by the COV­ID-19 pan­dem­ic means that open-ended fund pri­cing is once again firmly in the spot­light. At the fore­front of the de­bate have been IN­REV (the European As­so­ci­ation for In­vestors in Non-Lis­ted Real Es­tate) and AREF (the UK As­so­ci­ation of Real Es­tate Funds), who to­geth­er have been lead­ing an in­dustry wide con­sulta­tion on the ef­fect­ive­ness of dif­fer­ent pri­cing meth­ods in use by the prop­erty funds in­dustry.This note provides a high-level sum­mary of the three prin­cip­al meth­od­o­lo­gies, be­ing:Single NAV pri­cing;Dual pri­cing / bid-of­fer spread; an­d­Cap­it­al­isa­tion and amort­isa­tion. Single NAV Pri­cing This is es­sen­tially the basis on which all open-ended fund pri­cing meth­ods are de­rived. In its purest form, NAV-based pri­cing provides for in­vestors to sub­scribe for and re­deem in­terests in the fund based on the net as­set value (NAV) per unit of the fund vehicle. The NAV per unit is cal­cu­lated by di­vid­ing the NAV of the fund (i.e. the com­bined value of all the fund’s as­sets less its li­ab­il­it­ies) by the num­ber of units in is­sue. The fund’s entry and exit price will there­fore fluc­tu­ate as the fund and its port­fo­lio in­creases and de­creases in value. Typ­ic­ally, fund doc­u­ments will give the man­ager flex­ib­il­ity to ad­just the unit price to ac­count for events (such as draw­downs, dis­tri­bu­tions or sig­ni­fic­ant mar­ket events) which may have oc­curred since the most re­cently avail­able valu­ation and to oth­er­wise en­sure the fair treat­ment of in­vestors.Single NAV-based pri­cing has the be­ne­fit of be­ing read­ily un­der­stand­able and be­ing de­term­ined by ref­er­ence to a mar­ket stand­ard fin­an­cial re­port­ing frame­work. However, its prin­cip­al lim­it­a­tion is that the mod­el does not ac­count for the trans­ac­tion costs (such as leg­al and agents’ fees and stamp duty land tax) as­so­ci­ated with in­vest­ing a sub­scrib­ing in­vestor’s com­mit­ment or real­ising cap­it­al to fund a re­deem­ing in­vestor’s in­terests. The in­vestors in the fund are there­fore ex­posed to “di­lu­tion” – where ex­ist­ing in­vestors pay more than their fair share of trans­ac­tion costs in­curred on sub­sequent cap­it­al calls from new in­vestors (or new in­vestors fail to pay their fair share of trans­ac­tion costs already in­curred by the fund), res­ult­ing in ex­ist­ing in­vestors re­ceiv­ing less than their fair share of fu­ture re­turns.In the US mar­ket, where single NAV-based pri­cing has tra­di­tion­ally been more pre­val­ent, di­lu­tion is not gen­er­ally re­garded as such as is­sue. This is mainly due to the lar­ger scale of US open-ended funds (which may lessen the im­pact of di­lu­tion) and the lower level of trans­ac­tion costs in the US (which are of­ten be­low 1%). However in multi-coun­try mar­kets such as Europe and Asia, where trans­ac­tions are fre­quently con­duc­ted on a cross bor­der basis and as­so­ci­ated costs (par­tic­u­larly trans­ac­tion taxes) are gen­er­ally much high­er, the im­pact of di­lu­tion can be sub­stan­tial.This has led to the de­vel­op­ment of al­tern­at­ive pri­cing meth­ods which have sought to al­le­vi­ate con­cerns of di­lu­tion by al­loc­at­ing trans­ac­tion costs more fairly between sub­scrib­ing and re­deem­ing in­vestors. Dual Pri­cing / Bid-Of­fer Spread The dual pri­cing meth­od is an evol­u­tion of pure NAV based pri­cing. This mod­el as­sumes that in­vestors who are sub­scrib­ing will pay a premi­um on the NAV to re­flect the costs of in­vest­ing their com­mit­ments, while re­deem­ing in­vestors will in­cur a dis­count on the NAV to re­flect the costs of real­ising the ne­ces­sary cap­it­al to li­quid­ate their in­vest­ment in the fund. The un­der­ly­ing NAV on which the entry and exit price is de­term­ined may still be cal­cu­lated in a vari­ety of meth­ods, for ex­ample IFRS or UK GAAP.Dual pri­cing has seen wide­spread use in the UK mar­ket, where it was his­tor­ic­ally com­mon for the entry and exit price to be fixed at an ap­plic­able per­cent­age (e.g. an entry price of NAV plus 5% and an exit price of NAV less 2%, with the entry price typ­ic­ally high­er to ac­count for the ad­di­tion­al cost of stamp duty taxes on ac­quis­i­tion). This mod­el is known as the “bid-of­fer spread”, a term which refers to the delta between the amount that the fund will pay to in­vestors re­deem­ing their units (of­ten known as the bid or re­demp­tion price) and the amount that in­vestors must pay to buy units (the of­fer or is­sue price).As the mar­ket evolved, some man­agers sought great­er dis­cre­tion to de­term­ine the spread on a case by case basis to take in­to ac­count the fund’s ac­tu­al trans­ac­tion costs. While this po­ten­tially al­lowed for more ac­cur­ate pri­cing, it led to less cer­tainty over the ac­tu­al price that in­vestors would pay or re­ceive for their in­terests on entry and exit.Dual pri­cing meth­ods pro­tect against the is­sue of di­lu­tion and are re­l­at­ively simple (par­tic­u­larly in the case of fixed bid-of­fer spread pri­cing). However, they have of­ten been cri­ti­cised for the level of sub­jectiv­ity in de­term­in­ing the level of the spread. Fur­ther, giv­en the trans­ac­tion costs are as­sumed by the in­vestor at the point of in­vest­ment in the form of the of­fer spread, this res­ults in an im­me­di­ate write off of the spread in the books of the in­vestor. Per­haps for these reas­ons, clas­sic dual pri­cing has not seen wide­spread take up out­side of the UK do­mest­ic mar­ket and is of­ten seen as chal­len­ging to mar­ket in­ter­na­tion­ally. Cap­it­al­isa­tion and Amort­isa­tion Cap­it­al­isa­tion and amort­isa­tion seeks to ad­dress some of the fun­da­ment­al is­sues as­so­ci­ated with clas­sic dual pri­cing by cap­it­al­ising fund es­tab­lish­ment and trans­ac­tion costs (i.e. treat­ing them as an as­set of the fund) and then amort­ising (i.e. de­pre­ci­at­ing) those costs over time. These costs are then auto­mat­ic­ally re­flec­ted in the unit price as they are ac­coun­ted for in the un­der­ly­ing NAV of the fund. Gen­er­ally speak­ing, a short­er peri­od of amort­isa­tion will be­ne­fit new in­vestors over ex­ist­ing in­vestors, while a longer amort­isa­tion peri­od has the op­pos­ite ef­fect.While there are vari­ations of the cap­it­al­isa­tion and amort­isa­tion mod­el, one of the most widely known is IN­REV NAV, which provides for amort­isa­tion of costs over a five-year peri­od. However, the IN­REV NAV guidelines were not ori­gin­ally de­veloped as a fund pri­cing meth­od­o­logy but simply with a view to provid­ing an  in­dustry “gold stand­ard” means of re­port­ing funds on a like-for-like basis. As part of the wider on­go­ing in­dustry dis­cus­sion on fund pri­cing, some have there­fore ques­tioned wheth­er a five-year amort­isa­tion peri­od is ap­pro­pri­ate in the con­text of in­sti­tu­tion­al real es­tate funds, which of­ten ac­quire as­sets with a view to longer-term holds. As part of their joint in­dustry con­sulta­tion, IN­REV and AREF de­term­ined that cap­it­al­isa­tion and amort­isa­tion is most ef­fect­ive where the peri­od of amort­isa­tion is ad­ap­ted to re­flect the planned as­set hold­ing peri­ods of the fund vehicle, with a ten year peri­od sug­ges­ted as a suit­able proxy for in­sti­tu­tion­al open-ended vehicles. Many funds there­fore ad­apt IN­REV NAV guidelines to provide for a dif­fer­ent amort­isa­tion dur­a­tion com­men­sur­ate to their par­tic­u­lar in­vest­ment strategy.While cap­it­al­isa­tion and amort­isa­tion avoids any is­sue of sub­jectiv­ity in de­term­in­ing an ap­pro­pri­ate spread level and (like dual pri­cing) pro­tects in­vestors against di­lu­tion, it is gen­er­ally seen as more com­plic­ated to ac­count for than clas­sic dual pri­cing. Fur­ther, cap­it­al­isa­tion and amort­isa­tion ar­gu­ably only achieves fair­ness if the fund’s value in­creases com­men­sur­ately with the rate of amort­isa­tion, while the im­me­di­ate amort­isa­tion of fund es­tab­lish­ment costs may de­press unit prices sig­ni­fic­antly fol­low­ing the ini­tial clos­ing, po­ten­tially un­fairly be­ne­fit­ting in­vestors in­vest­ing in sub­sequent clos­ings. Some man­agers have at­temp­ted to ad­dress these is­sues by fur­ther ad­just­ments to the IN­REV NAV. For ex­ample, man­agers may dis­reg­ard the cap­it­al­ised costs on a re­demp­tion (as they are not a true as­set) and in­stead base the re­demp­tion price on the ac­tu­al ac­quis­i­tion cost of the as­set. Sum­mary The al­tern­at­ive pri­cing meth­ods de­scribed above can be de­scribed as at­tempts to ad­dress the ar­gu­ably in­sol­uble is­sue of fairly at­trib­ut­ing the costs of provid­ing li­quid­ity to in­vestors in il­li­quid prop­erty as­sets. None of the meth­ods have presen­ted a per­fect solu­tion to date. However, the in­dustry ap­pears to be mak­ing pro­gress, with IN­REV and AREF sug­gest­ing that “long-term in­vestors re­ceive re­l­at­ively sim­il­ar re­turns” un­der both the dual pri­cing and cap­it­al­isa­tion and amort­isa­tion meth­od, with both meth­ods also pro­tect­ing seed in­vestors from large-scale di­lu­tion.IN­REV and AREF have con­cluded that both meth­ods ul­ti­mately be­ne­fit from fine-tun­ing to achieve a more bal­anced out­come for in­vestors. For ex­ample, a reg­u­lar re-set­ting of the dual pri­cing spread may more ac­cur­ately re­flect ac­tu­al trans­ac­tion cost his­tor­ies, while cap­it­al­isa­tion and amort­isa­tion is gen­er­ally con­sidered to per­form bet­ter un­der slightly in­creased amort­isa­tion peri­ods which re­flect rel­ev­ant as­set hold­ing peri­ods.As the as­set man­age­ment sec­tor at­tempts to re­cov­er from the COV­ID-19 crisis, we ex­pect scru­tiny of pri­cing meth­ods to con­tin­ue as in­vestors push for great­er trans­par­ency, fair­ness and ac­count­ab­il­ity with­in the in­dustry­For any fur­ther in­form­a­tion, please con­tact a mem­ber of the CMS Funds Group.
19/02/2021
UK Private fund lim­ited part­ner­ship
Private fund lim­ited part­ner­ships (“PFLPs”) were in­tro­duced on 6 April 2017 by the Le­gis­lat­ive Re­form (Private Fund Lim­ited Part­ner­ships) Or­der 2017 (SI 2017/514) (“PFLP Or­der”), which made a num­ber of changes to the prin­cip­al stat­ute gov­ern­ing UK lim­ited part­ner­ships, the Lim­ited Part­ner­ships Act 1907 (“LPA 1907”).A PFLP is a sub-cat­egory of the lim­ited part­ner­ship, a fa­mil­i­ar and pop­u­lar struc­ture for UK private funds, and both Eng­lish and Scot­tish lim­ited part­ner­ships can be des­ig­nated as a PFLP. Des­ig­na­tion as a PFLP al­lows the lim­ited part­ner­ship to be­ne­fit from re­duced ad­min­is­trat­ive and fin­an­cial bur­dens and a clear­er re­gime in re­la­tion to the rights that in­vestors can ex­er­cise as lim­ited part­ners without com­prom­ising their lim­ited li­ab­il­ity status.Fund man­agers and in­vestors are be­com­ing more fa­mil­i­ar with the des­ig­na­tion and the PFLP is swiftly be­com­ing the de­fault op­tion for new UK private fund struc­tures. There are few down­sides to ap­ply­ing for the des­ig­na­tion where a “tra­di­tion­al” lim­ited part­ner­ship is already the pre­ferred struc­ture and the re­quire­ments are met. There are, how­ever, cer­tain cases where the in­ten­ded sim­pli­city of the re­gime is un­der­mined and im­min­ent re­form of lim­ited part­ner­ship law may in­tro­duce fur­ther bur­dens. Des­ig­na­tion of a PFLP A new lim­ited part­ner­ship can ap­ply for des­ig­na­tion as a PFLP on re­gis­tra­tion, and ex­ist­ing lim­ited part­ner­ships can ap­ply for re-des­ig­na­tion as a PFLP at any time. On ap­plic­a­tion for des­ig­na­tion or re-des­ig­na­tion as a PFLP, the gen­er­al part­ner has to con­firm that the part­ner­ship meets the fol­low­ing con­di­tions (known as the “private fund con­di­tions”): the PFLP is con­sti­tuted by a writ­ten agree­ment; an­dthe part­ner­ship is a col­lect­ive in­vest­ment scheme (for pur­poses of s235 of the Fin­an­cial Ser­vices and Mar­kets Act 2000).Once a part­ner­ship be­comes a PFLP, it will not be able to re­turn to or­din­ary lim­ited part­ner­ship status. What are the prin­cip­al fea­tures and be­ne­fits of us­ing a PFLP? The PFLP was de­signed for private funds and cre­ates a more flex­ible vehicle, es­pe­cially for private equity, real es­tate and in­fra­struc­ture fund man­agers. They have a num­ber of ad­vant­ages over the "stand­ard" lim­ited part­ner­ship vehicle, in­clud­ing:there is no re­quire­ment for a lim­ited part­ner in a PFLP to con­trib­ute cap­it­al, mean­ing a par­ti­cipant in a PFLP can fund its com­mit­ment solely by way of loan (or can make no con­tri­bu­tion at all);should in­vestors in a PFLP choose to con­trib­ute cap­it­al, there is no re­quire­ment to re­gister cap­it­al con­tri­bu­tions (in­clud­ing in­creases to cap­it­al con­tri­bu­tions) on the UK com­pany re­gister and the cap­it­al can (ex­cept as de­scribed be­low) be with­drawn at any time dur­ing the life of the PFLP;PFLPs be­ne­fit from a stat­utory "white list" of activ­it­ies that an in­vestor can un­der­take without risk­ing their lim­ited li­ab­il­ity status (bring­ing the PFLP re­gime in line with lim­ited part­ner­ship re­gimes in oth­er jur­is­dic­tions, such as Lux­em­bourg and Delaware); an­dP­FLPs are ex­empt from cer­tain stat­utory and ad­min­is­trat­ive (in­clud­ing fil­ing) du­ties.These are ex­pan­ded on be­low. Cap­it­al con­tri­bu­tions In a “stand­ard” lim­ited part­ner­ship, each lim­ited part­ner is re­quired to con­trib­ute cap­it­al at the time of its ad­mis­sion. If any of that cap­it­al is sub­sequently with­drawn, the lim­ited part­ner be­comes li­able for the debts and ob­lig­a­tions of the lim­ited part­ner­ship up to the amount with­drawn. If the lim­ited part­ners in a “stand­ard” lim­ited part­ner­ship were to con­trib­ute all amounts by way of cap­it­al, this would there­fore ob­vi­ously con­strain the abil­ity to re­pay the equity con­tri­bu­tions of in­vestors dur­ing the life of the vehicle.Typ­ic­ally, this has been ad­dressed by struc­tur­ing lim­ited part­ners’ con­tri­bu­tions to a lim­ited part­ner­ship by way of a nom­in­al (e.g. 0.01%) con­tri­bu­tion to cap­it­al, with the bal­ance be­ing com­mit­ted by way of loan. In re­cog­ni­tion that this nom­in­al cap­it­al struc­ture provides lim­ited pro­tec­tion to the cred­it­ors of a lim­ited part­ner­ship, the PFLP Or­der con­firms that the lim­ited part­ners in a PFLP are un­der no ob­lig­a­tion to con­trib­ute any cap­it­al and are not li­able for the debts or ob­lig­a­tions of the firm bey­ond the amount of the PFLP’s avail­able as­sets.Note that any lim­ited part­ner­ship which was re­gistered pri­or to 6 April 2017 and is sub­sequently re­des­ig­nated as a PFLP does how­ever re­main sub­ject to the pro­hib­i­tion on with­draw­al, to the ex­tent of any cap­it­al con­trib­uted pri­or to its re-des­ig­na­tion.If in­vestors do choose to com­mit cap­it­al to a PFLP, there is no re­quire­ment for the amount of cap­it­al con­trib­uted to be re­gistered on the UK com­pany re­gister. This has the be­ne­fit of elim­in­at­ing fil­ing ob­lig­a­tions where, for ex­ample, an ex­ist­ing lim­ited part­ner in­creases its com­mit­ment to a PFLP and in do­ing so is ob­liged to con­trib­uted fur­ther cap­it­al.In our ex­per­i­ence, while we have seen PFLPs util­ise cap­it­al only fund­ing struc­tures, a tra­di­tion­al loan cap­it­al split is still em­ployed for many PFLPs. This may in part be ex­plained by a re­luct­ance on the part of man­agers and in­vestors to di­verge from the ex­ist­ing mod­el that has be­come stand­ard in the private funds in­dustry. Fur­ther­more, a memor­andum of un­der­stand­ing (MoU) was agreed between the In­land Rev­en­ue (the pre­de­cessor to HM­RC) and the Brit­ish Ven­ture Cap­it­al As­so­ci­ation in re­la­tion to the in­come tax treat­ment of car­ried in­terest ar­range­ments in private fund lim­ited part­ner­ship struc­tures. In con­firm­ing the cap­it­al treat­ment of car­ried in­terest pro­ceeds, the MoU re­ferred to a typ­ic­al fund struc­ture which as­sumed a 99.99% / 0.01% loan cap­it­al split for in­vestor com­mit­ments. While the in­dustry is be­com­ing more ac­cept­ing that this mod­el is not strictly ne­ces­sary to en­sure cap­it­al treat­ment on car­ried in­terest, there has been no sub­sequent guid­ance from HM­RC and a con­ser­vat­ive ap­proach is there­fore taken in many cases. Per­mit­ted activ­it­ies for PFLP lim­ited part­ners In “stand­ard” lim­ited part­ner­ships, in­vestors may lose their lim­ited li­ab­il­ity status and risk be­com­ing li­able for the debts and ob­lig­a­tions of the lim­ited part­ner­ship if they are deemed to be­come in­volved in man­age­ment. As the private funds in­dustry has evolved and in­vestor ex­pect­a­tions for con­trols on gov­ernance (par­tic­u­larly in the form of lim­ited part­ner ad­vis­ory com­mit­tees) have be­come more rig­or­ous, this has giv­en rise to un­cer­tainty as to wheth­er those con­trols will com­prise lim­ited li­ab­il­ity status.The PFLP Or­der there­fore in­tro­duced a new stat­utory “white list” of activ­it­ies which a lim­ited part­ner in a PFLP could safely un­der­take without be­ing con­sidered to be tak­ing part in man­age­ment. The white list is non-ex­haust­ive, but in­cludes the fol­low­ing activ­it­ies:tak­ing part in de­cisions to vary or waive the terms of the part­ner­ship agree­ment, to change the gen­er­al nature of the part­ner­ship, to ex­tend its term or to ad­mit or re­move part­ners;ap­point­ing a per­son to wind up the part­ner­ship;provid­ing surety or act­ing as guar­ant­or for the part­ner­ship;ap­prov­ing the part­ner­ship ac­counts or valu­ations of its as­sets;con­sult­ing with or ad­vising a gen­er­al part­ner or part­ner­ship man­ager or ad­viser about the part­ner­ship’s af­fairs or ac­counts;tak­ing part in de­cisions about changes to per­sons re­spons­ible for the day-to-day man­age­ment of the part­ner­ship;act­ing, or au­thor­ising a per­son to act, as a dir­ect­or, mem­ber, em­ploy­ee, of­ficer or agent of, or a share­hold­er or part­ner in, a gen­er­al part­ner of, or a man­ager or ad­viser to, the part­ner­ship (provided that this does not ex­tend to tak­ing part in man­age­ment of the part­ner­ship’s busi­ness);ap­point­ing or nom­in­at­ing a per­son to rep­res­ent the lim­ited part­ner on a com­mit­tee of the part­ner­ship (such as an ad­vis­ory com­mit­tee), and au­thor­ising that per­son to take any ac­tion in that ca­pa­city (provided that this does not ex­tend to tak­ing part in man­age­ment of the part­ner­ship’s busi­ness); an­dtak­ing part in a de­cision ap­prov­ing or au­thor­ising an ac­tion pro­posed to be taken by a gen­er­al part­ner or man­ager of the part­ner­ship, such as ac­quis­i­tions or dis­pos­als (al­though not the se­lec­tion pro­cess for in­vest­ments); the par­ti­cip­a­tion of a lim­ited part­ner in a par­tic­u­lar in­vest­ment (such as through co-in­vest­ment rights); or the in­cur­ring, ex­ten­sion, vari­ation or dis­charge of part­ner­ship debts.The activ­it­ies con­tained in the stat­utory white list are not all auto­mat­ic­ally ex­er­cis­able by every in­di­vidu­al lim­ited part­ner in a PFLP, as par­ti­cip­a­tion in the PFLP will be gov­erned by and sub­ject to its con­sti­tu­tion­al doc­u­ments. Where the in­ten­tion is for lim­ited part­ners to be­ne­fit from the rights in the white list, the part­ner­ship agree­ment should there­fore ex­pressly at­trib­ute the rel­ev­ant rights to the lim­ited part­ners, ad­vis­ory com­mit­tee or equi­val­ent. To file or not to file? As a sub-cat­egory of lim­ited part­ner­ship, PFLPs are still gov­erned by the LPA 1907, the Part­ner­ship Act 1890 and ap­plic­able com­mon law. The PFLP Or­der acts to ex­empt PFLPs from some of the ap­plic­able stat­utory re­quire­ments.Lim­ited part­ners in a PFLP are ex­emp­ted from the duty to render ac­counts and in­form­a­tion between part­ners (in sec­tion 28 of the Part­ner­ship Act 1890) and from the re­stric­tion on com­pet­ing with the part­ner­ship (in sec­tion 30 of the Part­ner­ship Act 1890).PFLPs also be­ne­fit from re­duced fil­ing ob­lig­a­tions, which are sum­mar­ised be­low. Fu­ture re­form The UK Gov­ern­ment has ex­pressed its in­ten­tion to re­form lim­ited part­ner­ship law and, if in­tro­duced, the changes will im­pact the PFLP re­gime.In re­sponse to con­cerns that lim­ited part­ner­ships were be­ing mis­used for money laun­der­ing, or­gan­ised crime and tax eva­sion, the Gov­ern­ment launched a con­sulta­tion in April 2018. Its re­sponse, pub­lished in Decem­ber 2018, set out a range of pro­pos­als, in­clud­ing:the tight­en­ing of re­gis­tra­tion re­quire­ments for lim­ited part­ner­ships;re­quir­ing lim­ited part­ner­ships to demon­strate a firmer con­nec­tion to the UK;in­creas­ing trans­par­ency re­quire­ments; an­denabling the Re­gis­trar to strike from the re­gister lim­ited part­ner­ships which are dis­solved or which are no longer car­ry­ing on busi­ness.At the time, the Gov­ern­ment’s mes­sage was that le­gis­la­tion will be de­veloped as and when “par­lia­ment­ary time al­lows”. While re­form may there­fore not be im­min­ent at the time of writ­ing, par­tic­u­larly giv­en COV­ID-19 con­straints, the is­sue of lim­ited part­ner­ship re­form re­mains on the Gov­ern­ment’s radar, with the pub­lic­a­tion by HM Treas­ury in Janu­ary 2021 of con­sulta­tion pa­per in which the Gov­ern­ment ex­pressed an in­ten­tion to ex­plore if the in­tro­duc­tion of be­spoke part­ner­ship tax­a­tion rules for PFLPs could provide the op­por­tun­ity for im­proved tax ad­min­is­tra­tion and cer­tainty of tax out­comes for fund man­agers and in­vestors. Con­clu­sion Over­all, hav­ing the ad­di­tion­al PFLP op­tion is of sig­ni­fic­ant be­ne­fit to the UK funds in­dustry and aligns with oth­er jur­is­dic­tions which have de­veloped sim­il­ar mod­ern fund vehicles to re­flect mar­ket trends and pref­er­ences.If you would like to dis­cuss wheth­er your ex­ist­ing and fu­ture LP struc­tures might be­ne­fit by be­com­ing PFLPs and the pro­cess for re­gis­ter­ing or re-des­ig­nat­ing, please con­tact a mem­ber of the CMS Funds Group.