Sun Capital pushes into growth investing, The most negotiated term: GP clawbacks of waived carry, Ares targets $2bn for revamped direct lending fund

GPs waive carried interest on investments and Ares is back to market with a new debt fund.

Happy Friday!

Anybody in Albany for the annual emerging manager conference? I heard it’s a packed house. Hit me up if you hear any good nuggets about new firms. I’m at

Negotiating: One of the big terms I’ve been covering this year involves GPs giving themselves the ability to waive performance fees (carried interest) on investments they’ve held for less than three years, which are charged at the ordinary income rate of up to 37 percent. They push carry to subsequent investments they’ve held for three years or more, which are charged at the 20 percent capital gains rate.

GPs have to disclose their ability to do this in limited partner agreements, either up front on new funds, or through amendments on existing funds.

As part of these negotiations, I’ve heard anecdotally that some GPs have tried to take the negotiations one step further. Some GPs have asked for provisions in fund contracts, not only for the ability to waive carry, but for the ability to claw back their waived carry if they don’t make it up in subsequent investments in a fund.

This is not a widespread ask from GPs, sources tell me, and LPs I talked to said they would not grant such a request. The risk in waiving carry to subsequent investments is that the GP is not able to make up the carry by the end of the fund. GPs are more likely to use this strategy on funds with a lot of investments remaining, with provides ample opportunity to make back the waived carry. Funds near the end of their lives, with only one or two remaining investments, would present a riskier opportunity to try and recoup the performance fees.

“In terms of truing-up carry, sorry guys, if you’re getting cute to avoid taxes, you eat your cuteness if you don’t make the number you thought you were going to make,” an LP who has been involved in negotiations about this strategy told me.

Read my story here. Have you seen this in action? Reach me with your thoughts at

Challenges: Have you ever heard of the Jones Act? It’s a law that regulates maritime activity between U.S. ports. Among other things, it has implications for the energy industry as it relates to shipping product between ports.

The Jones Act came into play in delaying one of the bigger secondary processes in the market. Crestview Partners has been running a tender offer process on two older funds since last summer, allowing LPs in those older funds the ability to sell their interests at a pre-set price to pre-approved buyers.

That process was delayed, and scaled back, after one buyer dropped out due to Jones Act conflicts. My understanding is the buyer had foreign-based LPs in its funds, which prevented it from buying exposure to one of the underlying companies in the portfolio that was governed by the Jones Act.

Crestview ended up completing a much smaller tender than first envisioned on Fund III at the end of the year.

Check out my story here.

Top Scoops
Sun Capital Partners’ acquisition of West Dermatology underscores the firm’s push into healthcare amid its continued migration to growth-oriented companies, versus the turnaround-focused approach for which it was once known, writes Sarah Pringle on PE Hub. Check it out.

Ares Management is back to market with a new debt fund, Ares Pathfinder, targeting $2 billion with no hard-cap, writes Justin Mitchell on Buyouts. Read more.

Have a great weekend! Reach me with tips n’ feedback, gossip, Drama or whatever at, on Twitter or find me on LinkedIn.