Bespoke Fund Structures: Poised for a Resurgence

In August 2023, the Securities and Exchange Commission (SEC) adopted sweeping private fund adviser rules ¹ that increased disclosure and limited certain fee and expense practices. In June 2024, the Fifth Circuit vacated those rules in their entirety, so they are not in effect. Leadership changes at the SEC in 2025 have further signaled a shift in regulatory posture toward private funds.  

Fund managers, as a result, are now confident that a regulatory rollback will lead to renewed growth throughout the alternative finance space. Rapid growth in artificial intelligence and related technologies could only serve as a force multiplier. 

Whichever side of the ocean a private fund is domiciled, and to whatever degree it intends to expand geographically, its ability to innovate fund structures will be constrained by its ability to innovate data structures. The firm must be able to address the growing division between American and European regulatory standards to avoid compliance risk. It must also be technologically sophisticated enough to take advantage of possible efficiencies and revenue streams. 

Evolving structures in Europe and beyond 

Bespoke structures are surging across the Atlantic, though not necessarily within the E.U. According to securities law firm Ropes & Gray, there are three main reasons for “a considerable increase in investors seeking bespoke investment arrangements² with private fund sponsors” in the U.K.: 

• 1.A closer, two-way relationship: Being a fund’s sole participant makes a client more visible to the sponsor than being a member of a pool. Also, knowledge can be shared more privately in a principal-to-principal arrangement. 
• 2.Better economics and efficiencies: Fees, holding periods, deal flow covenants and other factors can be negotiated in the client’s favor. 
• 3.Special rights and protection: The client has greater say in the fund’s investment selection, distribution schedule, reporting detail and day-to-day governance. 

Those are not the only reasons. As with financial regulation, American and European leaders take markedly different approaches to environment, social, and governance issues. While ESG might be a fairly niche play Stateside, it is a major concern throughout all social strata³ in both the U.K. and the E.U. 

British and European pension funds might have a particular affinity for bespoke structures. They are required to pursue liability-driven investment, or LDI, strategies to ensure that they will remain solvent in the future. (While this is also the case in the U.S., American workers are more likely to draw from personal retirement plans than from traditional pensions.) According to Schroders, lower cost, access to more counterparties and regulatory certainty are factors that entice LDI-driven funds toward SMAs⁴. 

The E.U. and U.K. both originally operated under the Alternative Investment Fund Managers Directive⁵ (AIFMD), adopted in 2011. AIFMD II ⁶ entered into force on April 15, 2024, and EU member states must transpose it by April 16, 2026. Its provision address loan origination, leverage limits, liquidity management, and reporting. The U.K., however, is not expected to adopt AIFMD II⁷, giving British managers potential flexibility – and growth opportunities – compared to their EU peers.  

Latham & Watkins, a law firm that advises on funds-of-one, recently announced an expansion of their structured finance team⁸ at the senior level. Meantime, Partners Group, a Swiss-based private equity group, recently received British regulatory approval to provide long-term asset fund structures to be used for SMAs. 

U.S. managers anticipate growth in bespoke fund structures 

At his March 27, 2025, Senate confirmation hearing, newly appointed SEC Chair Paul Atkins underscored the sophistication of private-fund investors, signaling a potential recalibration of enforcement priorities.⁹  

“The private funds market displays growing levels of innovation and experimentation. Fund managers are increasingly opting to employ bespoke fund structures,” Private Equity Law Report stated – in 2018¹⁰. 

Seven years later, word has spread about the opportunities in this market and technology. Between the return of regulatory indifference and the rise of AI, bespoke fund structures are in the process of “mainstreaming,” according to Mike Mascia, Executive VP of EverBank’s fund finance practice. 

“Private credit is making a massive push beyond direct lending. Asset-backed finance has been the talk of the asset-class town and both KKR and Carlyle express that they see the opportunity as enormous,” he said. “But private capital is coming for fund finance. And not just further out on the yield continuum, where 17Capital, Hark, and Crestline have built sensational franchises. I think fund sponsors are going to come after the entirety of the traditional fund finance.” 

Stakes get ever higher 

Private finance firms should brace for a barrage of new investors and new opportunities to deploy capital. 

We find ourselves in a market environment defined by shifting dynamics and uncertainty. While this is most keenly felt in the U.S., real GDP contracted 0.5% (annualized) in Q1 2025; public-market uncertainty has sharpened investor focus on private credit and bespoke structures. 

There are a number of causes for this retrenchment. The economy has shrunk¹¹. There has been a sea change in public policy around foreign trade, with uncertain consequences for the trade in finished goods and for manufacturing supply chains. Lastly, if U.S. exchanges become less rigorously regulated, investors are likely to factor in a discount to reflect the perception of a growing risk of fraud. 

This is not likely to change soon. Even if we avoid a recession and stock indexes return to where they were a few months ago, the uncertainty is now tangible. Investors have been reminded of the fragility of the framework of global finance. 

We should not be surprised if this results in more business on the private finance side. This high-risk, high-reward field might look more attractive to a wider array of accredited investors when they compare it against a public market that has also become high-risk but remains low- to middling-reward. If market caps continue to slip, startups that might have considered going public might consider another private round instead. 

The drivers are not all financial or regulatory. If they were, their impact would be limited to their regulatory venue. Technology, however, knows no geographic boundaries. European financial services firms have been spending an increasingly large part of their budget¹² on their data centers. As in the rest of the world, financial technology in Europe is making private equity and lending more user-friendly and efficient, spurred on by AI and low-code platforms. Data-driven insights are improving decision-making by managing risk and preventing fraud. 

But fintech innovations neither install nor run themselves. Managers of private funds need to see the value of updating their information technology operations to meet these challenging times. 

Practical considerations 

What, then, do fund managers need to do to stay ahead of this rapidly evolving market? Several action items come to mind where technology partners can offer support for major, client-facing differentiators: 

• Select the right legal vehicle for each separately managed fund 
• Understand the regulatory triggers for every relevant venue 
• Recruit and retain key senior-level appointments 
• Streamline and error-proof the settlement and custody processes 

The resurgence of bespoke fund structures will not unfold evenly.  

In both the U.S. and Europe, investor demand is rising—but the regulatory climate is tilting the opportunity. In the U.S., policy retrenchment has cleared the runway for innovation, while in Europe, tightening frameworks—especially under AIFMD II and expanding ESG mandates—threaten to constrain future growth. Diverging paths are creating a rare asymmetry in private fund development, one that U.S. managers are better positioned to exploit as demand for funds-of-one and other customized vehicles accelerates on both sides of the Atlantic. 

Sources: 

• 1.US SEC overhauls rules for $20 trillion private fund industry, Reuters, August 23, 2023 
• 2.Fund of one: Recent trends in separately managed accounts, Ropes & Gray, January 29, 2024 
• 3.Fund Finance Laws and Regulations 2025, Global Legal Insights, January 24, 2025 
• 4.Should pension schemes with an LDI 'bespoke fund of one' consider a segregated approach?, Schroders, October 13, 2024 
• 5.DIRECTIVE 2011/61/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL, European Union, June 8, 2011 
• 6.Preparing for AIFMD II, KPMG, February 2024 
• 7.AIFMD II Leverage Limits and Single Borrower Exposure Restriction, BCLP, April 16, 2025 
• 8.Latham strengthens finance department with new hires, ICLG News, April 10, 2025 
• 9.SEC, Treasury and Transportation Department Nominees Testify at Confirmation Hearing, C-Span, March 27, 2025 
• 10.Interest in Bespoke Fund Structures Surges As Markets Adjust to New Administration and Regulatory Regime, Private Equity Law Report, March 8, 2018 
• 11.Gross Domestic Product, 1st Quarter 2025 (Advance Estimate), BEA, April 30, 2025 
• 12.The Digitalization of the European Banking Industry: Some Evidence, Springer Nature, July 19, 2023