Traditional entity management relies heavily on scattered information and manual processes. Many of the private fund managers we work with don’t have a centralized location for their legal entity information. They frequently need to search through multiple sources for vital information and manually revise organizational charts whenever a need arises.
With the new reporting requirements under the Corporate Transparency Act (CTA), decentralized information is even more problematic — slowing private fund managers down while their workloads continue to increase.
In this article, we walk through four examples of things that can go wrong when you rely on old-school entity management practices.
1. Handling daily portfolio management
Depending on your role, you may need to access structure charts, capitalization information, and other key documents on a daily basis. Common tasks include confirming the fund’s ownership stake in a portfolio company, identifying a portfolio company’s directors and officers, and determining who has signature authority for corporate actions.
Currently, you might have to find the right Word document, spreadsheet, or slide deck, look through a static structure chart, or even flip through a printed deskbook for this information. This is where problems arise. It’s challenging for firms to keep multiple sources of information up to date. If your document or structure chart isn’t always updated accurately and promptly, you might rely on inaccurate information.
2. Navigating a senior employee exit
Investment professionals often serve as officers and board members for internal entities and portfolio investment-related entities. When one of these professionals resigns or retires, the firm is responsible for making sure positions are appropriately transitioned to other professionals.
Ideally, the firm would formally document resignations and replacements from each position and for each entity. However, because it’s often hard to easily find information on all the positions that person holds, the best you might be able to do is have them sign an omnibus resignation letter and work through entity- and position-level changes one by one.
3. Preparing for an SEC exam
If the SEC selects your firm for an exam, the Division of Examinations may send you a notification letter with an initial request for documents and information. A September 6, 2023 SEC Risk Alert provides more information, but document requests will likely include a demand for organizational and portfolio management information, such as:
- Organizational structure, affiliations, and control persons.
- Current and former supervised persons, officers, and/or directors.
- Joint ventures or other businesses, including those with respect to the firm or any officer, director, portfolio manager, or trader.
- Remote offices and branch locations.
- Securities held in all client portfolios, including information identifying each client holding an interest, the amount owned by each client, the aggregate number of shares or principal and/or notional amount held, and total market value of the position.
- Information about certain types of client investments, e.g., private investments and initial public offerings.
- Publicly traded companies for which employees of the adviser or its affiliates serve as officers and/or directors.
- Companies for which employees of the adviser or its affiliates serve on creditors’ committees.
- Outside compensation to supervised persons, including compensation related to client’s transactions or investments.
- Client portfolio profile information, e.g., investment objectives, investment strategy, risk tolerance, suitability, and mandates.
To satisfy these asks, you’ll need to pull structure charts, organizational documents, capitalization schedules, officer & director slates, etc., to respond to the SEC within a matter of weeks.
4. Piecing together an older transaction
One of the most challenging situations in-house legal teams deal with is an older transaction that becomes relevant again. It can be difficult to locate key individuals, particularly for substantially exited investments. Responsible deal professionals may have left the firm or moved on to other priorities.
For example, you may need to distribute escrow amounts related to the sale of a portfolio company that occurred a few years ago. To do that, you’ll have to gather information to appropriately authorize the release of and accurately distribute the remaining funds.
In these situations, you often have to locate and dig through older electronic and paper documents. Depending on the age of the transaction, documents might have been saved on individual drives, scanned as image files, or not scanned at all. You may have to reach into your archives, pull boxes from storage, and dig through records to reconstruct the history, determine ownership, and more.
Modernize entity management with Ontra Atlas
Streamline how your firm manages its many legal entities across funds with AI-powered entity management solution, Ontra Atlas.
Ontra Atlas provides:
- A single source of truth: Consolidate and store entity data and associated documents in a central location.
- Structure charts: Easily visualize entity ownership and relationships with algorithmically generated and customizable structure charts.
- Visibility: Track directors, officers, and authorized signatories to complete corporate actions appropriately.
- Secure collaboration: Manage internal and external access to information through role-based permissions to facilitate data security and integrity.
Legal, investor relations, tax, accounting, and deal professionals can collaborate effectively with these capabilities, reduce the risk of errors based on outdated information, and control costs.
To learn more, schedule an Ontra Atlas demo today.
