Club deal structures - A Primer

What is a club deal structure?

In a capital raising context, a club deal structure brings together an investment manager with a small group of like-minded investors (typically less than five) to raise capital to make investments in line with a specific investment strategy. 

How do clubs differ from a traditional fund or co-investment structure?

Good question! Club deal structures can look very similar to a traditional fund structure. Usually, the main difference is the enhanced governance rights that investors may have with respect to the management and operation of the underlying investments. In addition, the investment manager may not always have full discretion to invest capital without investors either opting into (or out of) each investment. Club deals differ from co-investment structures in that a co-investment will typically focus on a single specific asset and will be made alongside a "main fund" structure with lower (or no) management fees/carried interest. Finally, club deal structures should not be widely marketed to prospective investors and generally evolve out of close pre-existing relationships that the investment manager has with the club investors.           

Why do investment managers like club deal structures? 

A club deal structure can act as a good launchpad for a new investment manager or a new strategy for an established manager. They offer an alternative to "deal-by-deal" structures and can help a manager to build its track record more quickly, potentially ahead of raising a traditional blind pool fund. In addition, capital can often be raised more quickly and, depending on the facts, in a less regulated environment (although we note that the regulatory position of club structures must always be carefully considered on a jurisdiction-by-jurisdiction basis). Finally, the economics on club deal structures are usually attractive for managers, with carry sometimes payable on a deal-by-deal (rather than whole-fund) basis.

Why do investors like club deal structures?

Club structures can offer investors a bespoke menu of assets with greater focus and investment flexibility than a traditional blind pool fund, often with specific opt-in / opt-out rights.  Coupled with greater governance rights, investors can be more actively involved in controlling and influencing underlying investments.  Investors also generally like the speed to market and lower establishment/operating costs associated with club structures compared to a traditional fund. 

Conclusion

Club deal structures have become a popular alternative to a traditional blind pool fund for a number of both new and established managers that are looking to raise capital quickly from a small number of investors.  However, whilst usually economically attractive for managers and investors alike they typically come with enhanced governance rights for investors, which can be challenging for managers to both negotiate at the outset and operate in practice once the structure is up and running.         

If you have any questions or would like more information on these structures please do reach out.    

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