US Fund Managers: How To Accommodate EUR Commitments To Your USD Fund – New York Office Snippet

We increasingly encounter questions from US fund managers (USFM) about accommodating EUR commitments to their USD-denominated funds. Such EUR commitments often arise in the context of commitments to a Luxembourg SCSp (the Fund) with a US oriented investment strategy. The SCSp is the default fund vehicle used by USFMs to access the EU investor market. EUR commitments are usually driven by EUR-denominated allocation limits to which EU based investors may be subject.

To accommodate such EUR commitments, the USFM can offer a separate EUR feeder or currency-specific classes of interests in the Fund. In both of those options, the Fund bears the currency exchange (FX) risk in the sense that it does not have predictability of the total drawdown cash to be received in USD from the EUR investors due to fluctuation of the EUR/USD FX rate between the date of the EUR commitments and the drawdowns. The Fund can hedge that FX risk, which comes at a cost that is borne by the Fund and is usually