Donald M. May, Ph.D, a Director in the Litigation and Corporate Financial Advisory Services Group at Marks Paneth & Shron LLP, has published an article in the "Hedge Fund Law Report" (HFLR) that details strategies for preventing valuation disputes when hedge fund general partnerships (GPs) are dissolved.
The dissolution of a hedge fund can be dizzyingly complex, more so than in the breakup of most other types of businesses. A proper valuation of the fund's current assets and an accurate estimate of its future performance are required in order to redeem the holdings of GP limited partners and estimate the impact on investors. This is no mean feat.
In the HFLR article, Dr. May discusses ways to approach the process efficiently -- and in a way that avoids debilitating valuation disputes. He also addresses:
The process by which hedge fund GP interests and hedge fund assets should be valued.
The valuation implications of the departure of a GP limited partner. (Note: Sometimes hedge fund's general partner itself is a limited partnership. Hence the phrase "GP limited partners.")
Three specific alternative valuation methods for valuing GP limited partnership interests.
The consequences of ambiguously drafted or nonexistent distribution agreements.
Specific guidelines for drafting valuation guidelines in hedge fund general partnership agreements.
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