Separate Accounts vs. Commingled Funds: Similarities and Differences in the Context of Credit Facilities

The use of managed accounts as an investment vehicle has been widely publicized of late with institutional investors such as the California State Teachers’ Retirement System and the New York State Common Retirement Fund (referring to such vehicles as “separate accounts”), and the Teacher Retirement System of Texas and the New Jersey Division of Investment (referring to such vehicles as “strategic partnerships”) making sizeable investments with high-profile private equity firms such as Apollo Global Management, LLC, Kohlberg Kravis Roberts & Co. and the Blackstone Group.

Regardless of name, these tailored investment vehicles represent a significant trend, with 32% of surveyed fund managers indicating they were intending to invest more from separate accounts during 2013. And although structurally divergent from commingled real estate or private equity funds (“Funds”), these separate accounts share a common objective with Funds: to produce strong returns with respect to invested capital in the most efficient manner possible.