This article examines the increasing complexity of joint venture and platform structures used by investors, fund managers, and sovereign wealth funds to deploy capital across multiple jurisdictions and asset classes.
1. An evolving "JV" and "Platform" Landscape
Infrastructure M&A transactions often feature JV arrangements at multiple levels in the holding structure. In the most common configuration, a feeder limited partnership ("JV LP"), frequently established in Luxembourg, the United Kingdom, or Jersey, serves as the primary JV vehicle for investors, while the target company itself ("Top Co") may also function as a JV for a period (for example, where 80% of Top Co is acquired on day one with the remaining 20% to be acquired over time as performance hurdles are met). Future JV partners may also invest into lower tier entities (e.g. a "Project Co") during the life of the JV.
This creates potential JVs at multiple levels: e.g. (i) at the JV LP level, (ii) at a Top Co level, and (iii) at a Project Co level.
The Typical JV Structure
The diagram below illustrates a representative infrastructure M&A related JV structure:
2. SMAs Investing Alongside Funds — A Growing Structural Challenge
A notable development has been the significant increase in SMAs investing alongside traditional fund vehicles. Fund managers are "pivoting" structures to accommodate this trend, with the result that a single underlying asset pool may be accessed through a JV LP and, in parallel, through multiple SMAs (e.g. established as Luxembourg SCSps, Channel Islands or Cayman partnerships).
The JV LP may invest through a limited partnership (e.g. a Luxembourg SCSp), into a "Blocker Co" (e.g. a Luxembourg SCA SICAV) and then into a subsidiary aggregator partnership, which holds investments through jurisdiction-specific project companies.
This multi-layered approach creates considerable structural complexity in terms of both the establishment of the structure and ongoing operational management, and therefore typically incurs higher establishment and running costs.
The parallel investment approach as between a JV LP and each co-investing SMA also requires consideration as to whether a JV agreement is required between each of these entities.
In addition to the above structural challenges arising from the increased use of SMAs, we are also observing: (a) investors increasingly investing into defined asset sleeves (by sector or geography) rather than solely into "blind pool" funds; (b) varying degrees of investor focus on underlying structures; (c) a continued focus on liquidity mechanisms within JV arrangements to maximise future "exit flexibility" across the infrastructure, energy and broader real asset sectors; and (d) in a UK real estate context, the continued growth of UK "private" REITs, with JV documentation increasingly including "future proofing" language to accommodate potential conversion into UK REIT structures.
3. The Regulatory Backdrop — JV, Club, or Fund?
A key question in every multi-investor structure is whether the arrangement constitutes a "joint venture", a "club" or co-investment, or a "fund": a distinction that is primarily commercial and regulatory in nature (rather than tax) but which carries implications for structuring, compliance, and cost of establishment and operation.
An important factor to consider at the outset relates to decision-making: will the investors take part in the key financial, operating, and strategic decisions and vote on typical reserved matters? If "yes", the arrangement is likely to comprise a JV, i.e. subject to lighter regulation but nevertheless requiring merger control and anti-trust clearance. If "no" (as decisions will be taken by a manager), the arrangement is likely to comprise a fund, subject to AIFMD, depositary requirements and extensive transparency, disclosure, reporting, and compliance obligations.
Co-investment "clubs" sit in an intermediate position between a JV and a fund and may, depending on the number of partners and jurisdiction, raise collective investment scheme considerations (particularly in the UK).
Obtaining early regulatory and anti-trust advice to determine, at each level of the structure, the correct characterisation of the entity ("JV", versus "club" etc.) is crucial to mitigate wasted time and fees during the structure establishment process.
4. Additional Platform Trends
In a broader JV and platform context, we are also seeing:
an increasing focus on "continuation" vehicles. These provide liquidity but present challenges to navigate, particularly in connection with indirect real estate transfer taxes and non-resident capital gains tax issues in multiple jurisdictions;
growing sophistication in the inclusion of tax specific provisions in term sheets and investor side letters, with investors increasingly requiring managers to share structure papers, opinions, and material correspondence with tax authorities;
increasing obligations on managers to confirm tax compliance, including requirements for quarterly or annual tax compliance confirmations (e.g. a trend which is particularly pronounced in the Australian market);
a heightened focus on ensuring correct policies and procedures are in place including establishing and maintaining intended tax residence of vehicles, mitigating permanent establishment risks for the JV and its investors; and
increasing scrutiny from tax authorities in relation to local permanent establishments of portfolio companies and a focus on the separation of the role of any investment manager from the directors of subsidiary companies.
5. Governance and Implementation Remain Key
The structural and regulatory themes discussed above all hinge from a practical perspective on correct implementation of structures and robust governance.
Lenders, investors and tax authorities are all applying significantly increased scrutiny to the substance and implementation of governance arrangements in JV structures.
Contemporaneous evidence is key to substantiating substance and robust governance: structures must demonstrate that (i) the right people (e.g. appropriately qualified directors) are (ii) in the right place (e.g. evidencing the location of central management and control) (iii) making the right decisions (e.g. at director or shareholder level as appropriate) (iv) pursuant to the right agreements (e.g. AIFM agreements, AMAs, IMAs) and (v) on a consistent global basis (e.g. aligned with each JV partner's global policies).
Governance failings can lead to significant value erosion and operational issues (e.g. cash repatriation issues in Spain, Italy, and numerous other jurisdictions).
6. Ongoing Trends - Looking Ahead
In light of the above, we expect the following trends to continue in the next 12 months:
Increased structural complexity — the proliferation of SMAs investing alongside traditional fund vehicles will continue to drive the need for bespoke structural solutions, separate JVAs, and careful regulatory characterisation at each level of the holding structure.
Heightened governance scrutiny — lenders, investors, and tax authorities will continue to apply increased scrutiny to the substance and implementation of governance arrangements. Investors and managers who invest in upfront structuring at term sheet stage, and who implement robust, consistent governance frameworks across jurisdictions, are expected to be best placed to preserve value.
Greater investor focus on term sheet provisions — upfront investment of time in term sheets on JV-specific structuring, tax governance maximising returns, and liquidity planning will become increasingly important as a means of lessening incidents of costly restructurings at a later stage.
Authors: Tim Gummer, Partner and Katy Webb, Counsel
