How Fund Managers Can Mitigate the Impact of Litigation on Their Transactions and Relationships

Litigation – which is expensive, diverts personnel and presents considerable reputational risk regardless of its result – can undermine an investment manager’s transactions and relationships. In addition, litigation rarely adds value or advances an investment manager’s objectives. The reality, however, is that disputes will arise in commercial transactions. Deal documents should provide for a process to resolve the disputes that do arise in a way that minimizes their impact on the economics and objectives of the transaction. Arbitration and mediation are the two best-known alternatives to litigation, although they are often conflated despite offering very different dispute resolution options, structures, processes and results. In a guest article, David C. Rose, partner at Pryor Cashman, discusses how fund managers can incorporate a multi-tiered dispute resolution process within their deal documents that requires parties to engage in mandatory mediation prior to submitting a dispute to litigation or arbitration, thereby mitigating the impact and risk of disputes among counterparties and salvaging or reviving valuable commercial transactions and relationships. See “Contractual Provisions That Matter in Litigation Between a Fund Manager and an Investor” (Oct. 2, 2014). For commentary from other Pryor Cashman attorneys, see “Ten Strategies for Preventing Disclosure of Confidential Hedge Fund Data Under State Sunshine Laws” (May 3, 2012).

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