Management Rights Letter
(Venture Capital Operating Company Qualification)

Summary

This management rights letter template may be used when making a private equity fund's first portfolio investment. The management rights letter allows a private equity fund to exercise rights necessary to qualify as a venture capital operating company (VCOC) under the plan asset regulations. 29 C.F.R. Section 2510.3-101(d)(3)(i). This template contains practical guidance and drafting notes. Importantly, a fund must qualify as a VCOC when making its first portfolio investment (at its initial valuation date) if it intends to rely on the VCOC exemption—it may not qualify by asserting management rights in a later investment. If the fund later admits investors (via admission or transfer) who are pension plans covered by the Employee Retirement Security Act of 1974 (ERISA), admitting such investors may affect the fund's ERISA plan assets participation by pushing such plan asset participation in the fund to over the 25% exemption, a management rights letter will allow the fund to have the documentation in place to qualify as a VCOC. For additional information on the VCOC exemption, see Plan Asset Regulation and the Look-Through Rule under ERISA.