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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

TO: Catherine E. Loomis, General Counsel & Chief Compliance Officer, Harrowgate Capital Partners LLC Jonathan P. Birch, Partner, Head of Operations & Chief Financial Officer, Harrowgate Capital Partners LLC

FROM: Sylvia Hartwell, Specialist Partner, Tax, Calderwood & Harkness LLP Stephen Adler, Lead Associate, Funds & Asset Management, Calderwood & Harkness LLP

DATE: April 28, 2025

RE: ERISA Analysis — Benefit Plan Investor Threshold and Plan Asset Avoidance for Harrowgate Private Equity Fund V LP and Related Vehicles

MATTER NO.: 1003-00002

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I. EXECUTIVE SUMMARY

You have asked us to analyze the regulatory framework under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Department of Labor's ("DOL") "plan assets" regulation, codified at 29 C.F.R. § 2510.3-101 (as modified by Section 3(42) of ERISA) (the "Plan Assets Regulation"), as applied to the fund vehicles being organized in connection with Harrowgate Private Equity Fund V LP (the "Main Fund"), Harrowgate Fund V Parallel LP (the "Parallel Fund"), Harrowgate Fund V Offshore SLP (the "Offshore Feeder"), and HGF V blocker Corp. (the "Blocker," and together with the Main Fund, the Parallel Fund, and the Offshore Feeder, the "Fund" or the "Fund Vehicles"). The purpose of this memorandum is to provide a comprehensive analysis of the plan asset rules and to set forth specific recommendations for structuring the Fund Vehicles to avoid having the Fund's underlying assets treated as "plan assets" subject to ERISA's fiduciary and prohibited transaction rules.

The overarching objective is straightforward but critical: each of the Fund Vehicles must be structured and managed so that none of the Fund's underlying assets — including portfolio company equity, debt instruments, cash held in Fund accounts, and any other investments or holdings — are treated as "plan assets" for purposes of ERISA. If any Fund Vehicle were to hold "plan assets," the General Partner (Harrowgate Fund V GP LLC) and the investment adviser (Harrowgate Capital Partners LLC) would be deemed ERISA fiduciaries, and all transactions involving Fund assets would be subject to the prohibited transaction rules of ERISA §§ 406–408 and the parallel excise tax provisions of Internal Revenue Code ("IRC" or the "Code") § 4975. Such a result would impose substantial operational constraints, personal fiduciary liability, and potential excise tax exposure that are fundamentally incompatible with the operation of a private equity fund.

The primary mechanism for avoiding plan asset treatment is well established: limiting "benefit plan investors" (as defined in 29 C.F.R. § 2510.3-101(f)(2)) ("BPIs") to less than twenty-five percent (25%) of each class of equity interests in each Fund Vehicle. This is the so-called "25% BPI threshold" or the "significance test." If BPI participation remains below this threshold, the underlying assets of the relevant Fund Vehicle are not treated as plan assets, and ERISA's fiduciary and prohibited transaction requirements do not apply to the Fund's operations.

Based on our analysis of the anticipated investor base, the proposed fund structure, and the applicable regulatory framework, we conclude as follows:

• The Fund is well-positioned to maintain BPI participation below 25% across all Fund Vehicles at the anticipated First Close and through the Final Close, provided that appropriate monitoring mechanisms, subscription agreement representations, and structural safeguards are implemented as described herein.

• The Northmoor State Pension System, as a governmental plan exempt from ERISA Title I and not described in IRC § 4975(e)(1), is not a BPI. Its substantial anchor commitment of $200,000,000 to the Main Fund provides significant denominator support, thereby creating ample headroom for BPI participation by other investors.

• The Kingsbridge Endowment Fund, as a 501(c)(3) university endowment investing its own institutional endowment assets (and not plan assets of any employee benefit plan), is not expected to be a BPI, and its anticipated investment through the blocker (HGF V blocker Corp.) provides an additional structural layer of insulation.

• Among the currently identified investor pipeline, the only investor that presents meaningful BPI analysis complexity is Stonewall Partners Fund of Funds III LP, which, as a fund of funds, may hold plan assets of its own underlying investors. This issue is manageable through appropriate representations and look-through calculations.

• As a secondary safeguard, the Fund can seek to qualify as a "venture capital operating company" ("VCOC") under 29 C.F.R. § 2510.3-101(d), which would exempt the Fund from plan asset treatment regardless of the level of BPI participation. Given the Fund's buyout strategy, VCOC qualification is likely achievable, though we recommend maintaining the sub-25% BPI threshold as the primary compliance strategy.

This memorandum is organized as follows: Section II sets forth the relevant background regarding the Fund structure, the Firm, and the anticipated limited partners. Section III describes the legal framework governing plan asset determination. Sections IV and V apply the legal framework to each Fund Vehicle and each identified investor, respectively. Sections VI through X address monitoring, subscription documentation, PPM disclosure, VCOC analysis, and the interaction with the blocker structure. Section XI presents illustrative BPI calculations under various scenarios. Section XII sets forth our specific recommendations and action items. Section XIII provides our conclusion.

II. BACKGROUND

A. The Fund Structure

The Fund is being organized as a multi-vehicle private equity fund structure consisting of the following entities:

Harrowgate Private Equity Fund V LP (the "Main Fund"). The Main Fund is a Delaware limited partnership to be formed under the Delaware Revised Uniform Limited Partnership Act. The Main Fund has a target hard cap of Two Billion Dollars ($2,000,000,000). It will serve as the primary investment vehicle for institutional limited partners seeking to invest alongside Harrowgate Capital Partners LLC in the Fund's buyout strategy. The general partner of the Main Fund is Harrowgate Fund V GP LLC (as described below). The Main Fund's limited partnership agreement (the "LPA") is currently in initial draft form, with a target circulation date of May 9, 2025.

Harrowgate Fund V Parallel LP (the "Parallel Fund"). The Parallel Fund is a Delaware limited partnership that will invest alongside the Main Fund on a pro rata basis in each portfolio investment. The Parallel Fund is being organized principally for certain tax-exempt and non-U.S. limited partners that require structural separation from the Main Fund for tax, regulatory, or operational reasons. The Parallel Fund will have its own limited partnership agreement and will maintain a separate capital account structure, but investment decisions will be made by the same General Partner and investment adviser as the Main Fund, and all investments will be made on a pari passu basis with the Main Fund (subject to allocation adjustments for tax or regulatory purposes).

Harrowgate Fund V Offshore SLP (the "Offshore Feeder"). The Offshore Feeder is a Cayman Islands exempted limited partnership to be formed under the Cayman Islands Exempted Limited Partnership Act (as revised). The Offshore Feeder serves as an offshore feeder vehicle for non-U.S. investors that prefer or require a non-U.S. investment vehicle for tax, regulatory, or other reasons. The Offshore Feeder may invest directly in portfolio investments alongside the Main Fund and the Parallel Fund or may invest through the Main Fund as a limited partner, depending on the final structuring determination.

HGF V blocker Corp. (the "Blocker"). The blocker is a Delaware C corporation to be formed under the Delaware General Corporation Law. The blocker is a "Blocker" entity designed for certain tax-exempt investors — principally The Kingsbridge Endowment Fund — to mitigate exposure to unrelated business taxable income ("UBTI") under IRC §§ 511–514. The blocker will hold a limited partnership interest in the Main Fund or the Parallel Fund (as determined in the final structuring), and tax-exempt investors will hold equity interests (shares of common stock) in the blocker rather than direct partnership interests in the Fund. The blocker will be subject to corporate-level federal income tax, but this structure is typically preferable for tax-exempt investors that wish to avoid the direct recognition of UBTI arising from the Fund's use of acquisition leverage.

Harrowgate Fund V GP LLC (the "General Partner" or "GP"). The General Partner is a Delaware limited liability company whose sole member is Harrowgate Capital Partners LLC. The General Partner will serve as the general partner of the Main Fund and the Parallel Fund and will have exclusive responsibility for the management, control, and operation of the Fund Vehicles (subject to the terms of the applicable partnership agreements). The General Partner intends to make a GP commitment of Fifty Million Dollars ($50,000,000), representing 2.5% of the Main Fund's $2.0 billion hard cap, to be funded alongside the limited partners' capital contributions on a pro rata basis.

B. Harrowgate Capital Partners LLC

Harrowgate Capital Partners LLC ("HCP" or the "Firm") is a Delaware limited liability company and a registered investment adviser under the Investment Advisers Act of 1940, as amended (SEC File No. 801-79223; CRD No. 298417). HCP's principal offices are located at 1200 Concord Pike, Suite 600, Wilmington, Delaware 19803.

HCP manages a family of private equity funds focused on North American mid-market and upper-mid-market buyouts. As of the date of this memorandum, HCP manages assets across Funds I through IV with aggregate assets under management of approximately $5.8 billion. HCP's investment strategy targets control and significant minority positions in operating companies in the industrials, business services, healthcare services, and technology-enabled services sectors, with typical equity checks ranging from $75 million to $250 million per transaction.

The key personnel of HCP relevant to this analysis include:

• Marcus J. Harrowgate — Founder, Managing Partner, and Chief Investment Officer

• Diana R. Castellano — Partner, Co-Head of Investments

• Jonathan P. Birch — Partner, Head of Operations, and Chief Financial Officer

• Catherine E. Loomis — General Counsel and Chief Compliance Officer

C. Anticipated Limited Partners with ERISA Relevance

The fundraising pipeline for Fund V currently includes the following identified prospective limited partners, each of which raises ERISA-related considerations that are addressed in detail in Section V below:

Northmoor State Pension System. The Northmoor State Pension System is a state governmental pension plan organized and maintained pursuant to the pension code of the State of Northmoor. Northmoor has indicated an anticipated commitment of Two Hundred Million Dollars ($200,000,000) to the Main Fund. The key contact for Northmoor is Helen T. Barrows, Director of Private Markets, with offices at 400 Capitol Boulevard, Suite 1100, Northmoor City, Northmoor. As a governmental plan, Northmoor's commitment is of particular significance to the BPI analysis because governmental plans are not BPIs but do contribute to the denominator of the 25% test, thereby providing valuable headroom.

The Kingsbridge Endowment Fund. The Kingsbridge Endowment Fund is a 501(c)(3) tax-exempt university endowment affiliated with Kingsbridge University. Kingsbridge has indicated an anticipated commitment of One Hundred Million Dollars ($100,000,000). The key contact is Dr. Philip W. Sheng, Chief Investment Officer, with offices at 88 University Drive, Kingsbridge, Massachusetts 02140. Kingsbridge intends to invest via the blocker (HGF V blocker Corp.) or the Parallel Fund to mitigate UBTI exposure. The characterization of Kingsbridge's investment as BPI or non-BPI depends on whether its assets include plan assets of any employee benefit plan, as discussed in detail below.

Edgecombe Insurance Group Ltd. Edgecombe Insurance Group Ltd. is a Bermuda-domiciled insurance holding company with an anticipated commitment of One Hundred Fifty Million Dollars ($150,000,000) to the Main Fund. Edgecombe is expected to invest from its general account assets.

Velthorn Family Office LLC. Velthorn Family Office LLC is a Delaware limited liability company operating as a single-family office, with an anticipated commitment of Fifty Million Dollars ($50,000,000) to the Main Fund. Velthorn invests proprietary family wealth and is not expected to invest on behalf of any employee benefit plan.

Tidewater Sovereign Investment Authority. The Tidewater Sovereign Investment Authority is a foreign sovereign wealth fund with an anticipated commitment of One Hundred Seventy-Five Million Dollars ($175,000,000), to be invested via the Offshore Feeder. As a foreign sovereign entity, Tidewater is not a U.S. employee benefit plan and is not a BPI.

Stonewall Partners Fund of Funds III LP. Stonewall Partners Fund of Funds III LP is a Delaware limited partnership organized as a fund of funds, with an anticipated commitment of Seventy-Five Million Dollars ($75,000,000) to the Main Fund. The key contact is Bernard C. Molinaro, Managing Director. As a fund of funds, Stonewall presents the most significant BPI analysis issue among the currently identified pipeline investors, because its underlying investors may include benefit plan investors, triggering the look-through provisions of the Plan Assets Regulation.

The total identified fundraising pipeline as of the date of this memorandum is Seven Hundred Fifty Million Dollars ($750,000,000), which equals the Minimum First Close target for the Fund.

III. LEGAL FRAMEWORK

A. ERISA Section 3(42) and the Plan Assets Regulation

The starting point for any plan asset analysis is ERISA Section 3(42), which provides that the term "plan assets" has the meaning given such term by regulations prescribed by the Secretary of Labor. This provision was added by the Pension Protection Act of 2006 and effectively codified the DOL's longstanding regulatory framework for determining when the assets of an entity in which a plan invests are treated as plan assets of the investing plan.

The DOL's Plan Assets Regulation, codified at 29 C.F.R. § 2510.3-101 (as amended by 29 C.F.R. § 2510.3-101(a)(2)), sets forth the rules for determining when an equity investment by a plan in another entity causes the underlying assets of that entity to be treated as plan assets of the investing plan. The regulation was originally promulgated in 1986 and has been amended on several occasions, most recently in connection with the codification of Section 3(42).

The basic rule is as follows: when a plan acquires an "equity interest" in an entity that is not a "publicly offered security" and equity participation by "benefit plan investors" is "significant," the underlying assets of the entity are treated as plan assets of the investing plan. 29 C.F.R. § 2510.3-101(a)(2). For purposes of this rule, an "equity interest" is defined broadly to include any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and that has no substantial equity features. 29 C.F.R. § 2510.3-101(b)(1). Limited partnership interests in a limited partnership are equity interests within the meaning of the regulation.

The term "publicly offered security" is defined in 29 C.F.R. § 2510.3-101(b)(2) to include securities that are freely transferable, part of a widely held class of securities, and either registered under the Securities Exchange Act of 1934 or sold pursuant to an effective registration statement under the Securities Act of 1933 (subject to certain conditions). None of the Fund Vehicles will issue publicly offered securities. Accordingly, the publicly offered securities exemption is not available.

The critical determination, therefore, is whether equity participation by BPIs in any Fund Vehicle is "significant" — that is, whether BPIs hold 25% or more of any class of equity interests in the vehicle.

The consequences of plan asset treatment are severe and far-reaching. If the underlying assets of a Fund Vehicle were treated as plan assets:

(a) The General Partner (Harrowgate Fund V GP LLC) and the investment adviser (Harrowgate Capital Partners LLC) would be deemed ERISA fiduciaries with respect to the Fund's assets, subject to the fiduciary duties of prudence, loyalty, diversification, and compliance with plan documents set forth in ERISA §§ 404 and 405.

(b) All transactions involving Fund assets would be subject to the prohibited transaction rules of ERISA §§ 406–408, which broadly prohibit transactions between a plan and "parties in interest" (including fiduciaries, service providers, and their affiliates). The parallel excise tax provisions of IRC § 4975 would also apply, imposing a two-tier excise tax on "disqualified persons" who engage in prohibited transactions.

(c) Extensive reporting obligations would apply, including the filing of annual reports on Form 5500 and compliance with the bonding requirements of ERISA § 412.

(d) The General Partner and investment adviser would be subject to personal liability for fiduciary breaches, including the obligation to make the plan whole for any losses resulting from a breach and to disgorge any profits earned through the use of plan assets.

(e) The co-fiduciary liability rules of ERISA § 405 could extend liability to other persons who knowingly participate in or fail to remedy a fiduciary breach.

In short, plan asset treatment would fundamentally alter the legal and operational framework governing the Fund and would create compliance obligations and liability exposure that are incompatible with the Fund's investment strategy and operations. For these reasons, maintaining compliance with the 25% BPI threshold is of paramount importance.

B. Definition of "Benefit Plan Investor"

The term "benefit plan investor" is defined in 29 C.F.R. § 2510.3-101(f)(2) to include three categories of investors:

(i) Employee benefit plans subject to ERISA Title I, Part 4. This category encompasses private-sector pension plans (both defined benefit and defined contribution) and welfare benefit plans (health, life insurance, disability, etc.) that are subject to the fiduciary responsibility provisions of Part 4 of Title I of ERISA. This is the most commonly encountered category of BPIs and includes corporate pension plans, 401(k) plans, profit-sharing plans, and similar arrangements maintained by private-sector employers.

(ii) Plans described in IRC § 4975(e)(1). This category encompasses plans that are subject to the prohibited transaction excise tax provisions of the Internal Revenue Code, including individual retirement accounts ("IRAs"), individual retirement annuities, Keogh plans (H.R. 10 plans) covering self-employed individuals, and certain other tax-favored retirement arrangements. This category overlaps substantially with category (i) but also captures plans (such as IRAs) that are not subject to ERISA Title I but are subject to the prohibited transaction rules of the Code.

(iii) Entities whose underlying assets include plan assets (the "look-through" rule). This category captures entities that are themselves holding plan assets by reason of a plan's investment in the entity. In other words, if an investing entity (such as a fund of funds) has failed to maintain the sub-25% BPI threshold or has not otherwise avoided plan asset treatment, that entity is itself treated as a BPI, and its investment in the Fund must be counted in the BPI numerator for the Fund's 25% test. The amount to be included in the numerator is the full amount of the entity's investment (or, under certain interpretive approaches, the portion of the entity's investment attributable to plan assets).

Several categories of investors are expressly excluded from the definition of BPI or are otherwise not subject to the Plan Assets Regulation:

Governmental plans. Plans established and maintained by federal, state, or local governmental entities for the benefit of their employees are "governmental plans" as defined in ERISA § 3(32) and are exempt from ERISA Title I pursuant to ERISA § 4(b)(1). Governmental plans are also not plans described in IRC § 4975(e)(1), because IRC § 4975(g)(2) expressly excludes governmental plans from the application of the prohibited transaction excise tax. Accordingly, governmental plans are not BPIs under any of the three categories set forth above. The Northmoor State Pension System falls squarely within this exclusion, as discussed in detail in Section V.A below.

Church plans. Plans established and maintained by churches or conventions or associations of churches that have not elected coverage under ERISA pursuant to ERISA § 410(d) are similarly excluded from ERISA Title I and are not plans described in IRC § 4975(e)(1). Such plans are not BPIs. No church plans have been identified among the anticipated investor base for Fund V.

Non-U.S. plans and foreign governmental entities. Plans established and maintained outside the United States for the benefit of non-U.S. employees are generally not subject to ERISA or IRC § 4975 and are therefore not BPIs. Similarly, foreign governmental entities (such as the Tidewater Sovereign Investment Authority) are not BPIs. However, if a non-U.S. entity is investing plan assets of a U.S. employee benefit plan (for example, a non-U.S. subsidiary maintaining a U.S.-based benefit plan), the look-through rule could apply.

C. The 25% Test — Calculation Methodology

The 25% BPI threshold is the central quantitative test under the Plan Assets Regulation. The test is applied as follows:

Class-by-class analysis. The 25% threshold is measured on each class of equity interests in the entity, not on an aggregate basis across all classes or across all Fund Vehicles. If a Fund Vehicle has only a single class of equity interests (as is the case for each of the Fund Vehicles under consideration), the test is applied to that single class. If multiple classes exist (for example, if a fund were to issue both Class A and Class B limited partnership interests with different economic terms), the test must be applied separately to each class.

Separate vehicle analysis. Each Fund Vehicle is a separate legal entity with its own equity interests. The 25% test is applied independently to each Fund Vehicle. Thus, the Main Fund, the Parallel Fund, the Offshore Feeder, and the blocker each have their own separate 25% calculation.

The formula. The BPI percentage for a given class of equity interests is calculated as:

BPI Percentage = (Aggregate Value of Equity Interests Held by BPIs) / (Total Value of All Equity Interests in the Relevant Class) × 100

For a limited partnership in the fundraising and investment period, "value" is typically measured by reference to capital commitments (or, in some cases, contributed capital). For purposes of this memorandum, we use capital commitments as the relevant metric, which is the standard approach during the fundraising period.

Treatment of the GP commitment. The Plan Assets Regulation does not expressly exclude the general partner's equity interest from the denominator. Under certain interpretive positions advanced by practitioners, the GP's interest could be excluded from the denominator on the theory that the GP's interest is not of the same "class" as the limited partners' interests. However, the more conservative and widely accepted approach is to include the GP's commitment in the denominator. This approach is more protective because including the GP's commitment in the denominator increases the denominator and thereby reduces the BPI percentage. We recommend applying the conservative approach and including the GP's $50,000,000 commitment in the denominator of the Main Fund's 25% calculation. This approach provides an additional margin of safety.

Timing of the test. The 25% test must be satisfied at each "valuation date." The regulation provides that a valuation date occurs on each date on which equity interests are acquired by or on behalf of a BPI or on which equity interests are redeemed. 29 C.F.R. § 2510.3-101(f)(1). In the context of a closed-end private equity fund with multiple closings, a valuation date occurs at each closing (when new limited partners are admitted and new equity interests are issued). A valuation date also occurs upon any transfer of limited partnership interests (when the transferee acquires the interest). Accordingly, the BPI percentage must be calculated and verified at each closing and upon any transfer of interests.

The look-through rule for fund-of-funds investors. The look-through rule in 29 C.F.R. § 2510.3-101(f)(2)(iii) requires careful attention when a prospective investor is itself an entity that may hold plan assets. If an investing entity's own underlying assets include plan assets (because BPIs hold 25% or more of the investing entity's equity and the entity does not qualify for an exemption), the investing entity is treated as a BPI for purposes of the Fund's 25% test. In that case, the full amount of the investing entity's commitment to the Fund is counted in the BPI numerator.

Alternatively, under certain DOL guidance, if the investing entity holds plan assets but can identify and segregate the portion of its commitment attributable to plan assets, only that portion may need to be counted in the BPI numerator. The practical approach is to require the investing entity to represent its plan asset status and, if applicable, the percentage of its assets constituting plan assets.

This look-through analysis is directly relevant to Stonewall Partners Fund of Funds III LP, as discussed in Section V.C below. Stonewall must represent whether its assets constitute plan assets and, if so, the percentage of plan assets in its capital base. If Stonewall maintains its own sub-25% BPI threshold and is not otherwise a plan asset entity, its $75,000,000 commitment does not count in the Fund's BPI numerator at all. If Stonewall's assets are plan assets (because its own BPI participation exceeds 25%), the full $75,000,000 (or the relevant portion attributable to plan assets, depending on the methodology applied) is counted in the numerator.

D. Exemptions: VCOC and REOC Status

Even if the 25% BPI threshold were exceeded, the Fund could avoid plan asset treatment if it qualifies as either a "venture capital operating company" ("VCOC") or a "real estate operating company" ("REOC") under 29 C.F.R. § 2510.3-101(d) and (e), respectively.

VCOC qualification. An entity qualifies as a VCOC if it satisfies two requirements:

(a) The 50% investment test. At least 50% of the entity's assets (valued at cost) must be invested in "venture capital investments." A "venture capital investment" is defined as an investment in equity securities of an operating company as to which the entity obtains "management rights" — i.e., contractual rights to participate in or substantially influence the management of the operating company. Typical management rights include board representation, board observer rights, veto rights over significant corporate actions (such as mergers, asset sales, incurrence of indebtedness, changes in business strategy, and capital expenditures above specified thresholds), and consent rights over annual budgets and key personnel decisions.

(b) The annual exercise requirement. The entity must actually exercise its management rights with respect to at least one portfolio company in each annual period. Mere possession of management rights is insufficient; the rights must be affirmatively exercised. This requirement is typically satisfied through active board participation, exercise of consent or veto rights, or other substantive involvement in the management of portfolio companies.

Given HPE Fund V's buyout strategy — which targets control and significant minority positions in North American mid-market and upper-mid-market operating companies in the industrials, business services, healthcare services, and technology-enabled services sectors, with typical equity checks of $75 million to $250 million — VCOC qualification is likely achievable. In a typical leveraged buyout, the fund sponsor obtains comprehensive management rights through board representation, shareholder agreements, and governance provisions in the acquisition documentation. The exercise of such rights is a core part of the fund's value-creation strategy and occurs as a matter of course in the ordinary operation of the fund's portfolio.

REOC qualification. An entity qualifies as a REOC if at least 50% of its assets (valued at fair market value) are invested in real estate that is managed or developed, and the entity is engaged in real estate management or development activities with respect to such assets. Given that Fund V's strategy does not involve real estate investment, REOC qualification is not available and is not further discussed in this memorandum.

Key distinction: VCOC denominator. An important distinction between the 25% BPI test and the VCOC 50% investment test is that the VCOC test includes all investors in the denominator, including governmental plans. Thus, Northmoor State Pension System's $200,000,000 commitment is included in the total asset base against which the 50% venture capital investment test is measured. This does not affect the BPI analysis but is relevant for VCOC compliance planning.

Our recommendation. We recommend that the Fund maintain the sub-25% BPI threshold as the primary plan asset avoidance strategy and treat VCOC qualification as a secondary safeguard. The sub-25% approach is simpler to maintain, does not constrain the Fund's investment activity or portfolio construction, and does not require the Fund to ensure that management rights are obtained in at least 50% of investments (by cost) and exercised annually. By contrast, VCOC compliance imposes ongoing operational requirements that, if inadvertently breached, could result in plan asset treatment. Nonetheless, as a belt-and-suspenders measure, we recommend including a VCOC operating covenant in the LPA, as discussed in Section IX below.

IV. APPLICATION TO FUND V VEHICLES

This Section applies the legal framework described in Section III to each of the four Fund Vehicles, analyzing the BPI exposure and plan asset risk for each vehicle independently.

A. Main Fund — Harrowgate Private Equity Fund V LP

The Main Fund will be structured as a Delaware limited partnership with a single class of limited partnership interests. The 25% BPI test therefore applies to that single class.

Anticipated direct investors in the Main Fund. Based on the current fundraising pipeline, the following investors are anticipated to invest directly in the Main Fund:

The Kingsbridge Endowment Fund ($100,000,000) is expected to invest via the blocker or the Parallel Fund, not directly in the Main Fund. If Kingsbridge invests through HGF V blocker Corp., the blocker would hold a limited partnership interest in the Main Fund (or Parallel Fund) as a single investor. The blocker is a C corporation, not an employee benefit plan or a plan described in IRC § 4975(e)(1). The look-through analysis with respect to the blocker's investment in the Main Fund depends on whether the blocker itself is a plan asset entity — that is, whether BPIs hold 25% or more of the blocker's equity. As discussed in Section IV.D below, if Kingsbridge is the sole investor in the blocker and is not a BPI, the blocker is not a plan asset entity and its investment in the Main Fund does not count in the BPI numerator.

Illustrative BPI calculation at First Close. Assuming the First Close occurs at the Minimum First Close target of $750,000,000 and that the Main Fund commitments total $525,000,000 (the four direct Main Fund investors listed above, plus the GP commitment), the BPI calculation would be as follows:

Scenario A: Stonewall is NOT a BPI (i.e., Stonewall maintains its own sub-25% BPI threshold and its assets are not plan assets):

• BPI numerator: $0

• Total equity interests (denominator): $525,000,000

• BPI percentage: 0.0%

Scenario B: Stonewall IS a BPI (i.e., Stonewall's own BPI participation exceeds 25% and its assets are treated as plan assets, with the full commitment counted in the numerator):

• BPI numerator: $75,000,000

• Total equity interests (denominator): $525,000,000

• BPI percentage: $75,000,000 / $525,000,000 = approximately 14.3%

Scenario C: Stonewall is a plan asset entity, but only 30% of its assets are attributable to plan assets (a conservative look-through approach):

• BPI numerator: $75,000,000 × 30% = $22,500,000

• Total equity interests (denominator): $525,000,000

• BPI percentage: $22,500,000 / $525,000,000 = approximately 4.3%

In all three scenarios, the BPI percentage is well below 25%. Even under the most aggressive assumption (Scenario B), the BPI percentage is only 14.3%, leaving approximately $56.25 million of additional headroom before reaching the 25% threshold at the current commitment level (i.e., the Fund could accept an additional approximately $56.25 million from BPIs before reaching 25% of $525 million). As the Main Fund grows toward its hard cap through subsequent closings, the denominator increases, providing even more headroom.

Subsequent closings. At each subsequent closing (through the anticipated Final Close on or about February 15, 2027), additional limited partners will be admitted, and the BPI percentage must be recalculated. As long as the proportion of BPI commitments remains below 25% of the expanding denominator, the Fund will maintain compliance. The GP should track BPI participation prospectively before admitting new investors and should have the contractual right to decline or reduce commitments if necessary.

B. Parallel Fund — Harrowgate Fund V Parallel LP

The Parallel Fund is a separate Delaware limited partnership with its own class of equity interests. The 25% BPI test applies independently to the Parallel Fund, and the BPI analysis must be performed separately from the Main Fund.

The Parallel Fund is being organized principally for certain tax-exempt and non-U.S. limited partners requiring structural separation. If The Kingsbridge Endowment Fund invests directly in the Parallel Fund (rather than through the blocker), the BPI characterization of Kingsbridge becomes directly relevant to the Parallel Fund's 25% calculation.

As discussed in greater detail in Section V.B below, university endowments are generally not themselves employee benefit plans under ERISA or plans described in IRC § 4975(e)(1). A university endowment invests its own institutional assets — which may include gifts, bequests, investment returns, and other endowment income — for the benefit of the university's educational mission. The endowment is not established or maintained for the purpose of providing benefits to employees and is not an "employee benefit plan" within the meaning of ERISA § 3(3).

However, a university may maintain separate employee benefit plans (such as a defined benefit pension plan, a 403(b) plan, or a 457 plan for university employees), and in some instances, the assets of such plans may be commingled with the university's general endowment for investment purposes. If Kingsbridge's endowment assets include commingled plan assets, a look-through analysis could be triggered. The standard practice is to require the endowment to represent in its subscription agreement whether its assets include plan assets of any employee benefit plan subject to ERISA or IRC § 4975.

If Kingsbridge represents that its endowment assets do not include plan assets, it is not a BPI, and its commitment does not count in the Parallel Fund's BPI numerator. This is the expected outcome based on our preliminary understanding of Kingsbridge's investment structure.

Monitoring. The GP should separately track BPI participation in the Parallel Fund at each closing and upon any transfer of interests. Given that the Parallel Fund may have a smaller investor base than the Main Fund, even a single BPI investor could represent a larger percentage of the total equity interests, making careful monitoring particularly important.

C. Offshore Feeder — Harrowgate Fund V Offshore SLP

The Offshore Feeder is a Cayman Islands exempted limited partnership designed for non-U.S. investors. The 25% BPI test applies independently to the Offshore Feeder.

The anticipated primary investor in the Offshore Feeder is the Tidewater Sovereign Investment Authority, a foreign sovereign wealth fund with an anticipated commitment of $175,000,000. As a foreign sovereign entity, Tidewater is not a U.S. employee benefit plan, is not a plan described in IRC § 4975(e)(1), and is not a BPI. Other anticipated investors in the Offshore Feeder are expected to be non-U.S. institutional investors (pension funds, sovereign wealth funds, insurance companies, and other institutional allocators domiciled outside the United States), none of which would be BPIs unless they are investing plan assets of a U.S. employee benefit plan.

BPI exposure in the Offshore Feeder is expected to be negligible or zero. Nonetheless, the subscription documents for the Offshore Feeder should include BPI representations to capture any investor that may be investing plan assets of a U.S. employee benefit plan. This is a precautionary measure to ensure that BPI status is identified and tracked for all investors across all vehicles.

D. Blocker — HGF V blocker Corp.

The blocker is being formed as a Delaware C corporation primarily to address UBTI concerns for tax-exempt investors, principally The Kingsbridge Endowment Fund. The ERISA intersection with the blocker structure warrants careful analysis.

The blocker as a separate entity for BPI purposes. HGF V blocker Corp. is a separate legal entity — a C corporation — with its own equity interests (shares of common stock). The Plan Assets Regulation applies to the blocker independently. If BPIs hold 25% or more of the blocker's equity (i.e., 25% or more of its outstanding common stock), the blocker's underlying assets — including its limited partnership interest in the Main Fund or Parallel Fund — would be treated as plan assets.

However, if BPIs hold less than 25% of the blocker's equity, the blocker's assets are not plan assets, and the blocker is not itself a BPI. In that case, the blocker's investment in the Main Fund (or Parallel Fund) is treated as an investment by a single non-BPI investor, and the full amount of the blocker's commitment to the Fund counts only in the denominator (not the numerator) of the Fund's 25% BPI calculation.

Kingsbridge as the sole blocker investor. If The Kingsbridge Endowment Fund is the sole investor in the blocker and Kingsbridge is not a BPI (as expected), then:

• The blocker's BPI percentage is 0% (no BPIs hold equity in the blocker).

• The blocker's assets are not plan assets.

• The blocker is not a BPI.

• The blocker's investment in the Main Fund or Parallel Fund does not count in the BPI numerator for the relevant Fund Vehicle.

This structure provides an additional layer of insulation against plan asset treatment. Even if there were any ambiguity regarding Kingsbridge's BPI status (for example, if Kingsbridge's endowment were found to include commingled plan assets), the interposition of the blocker as a C corporation creates a separate entity-level analysis that can independently maintain the sub-25% threshold.

Additional investors through the blocker. If additional tax-exempt investors invest through the blocker, the BPI status of each additional investor must be assessed, and the BPI percentage for the blocker's equity must be calculated independently. The blocker's certificate of incorporation and bylaws should include provisions permitting the blocker's board of directors (which will be controlled by HCP) to decline subscriptions from BPIs if necessary to maintain the sub-25% threshold at the blocker level.

Recommendation. We recommend structuring the blocker so that BPIs hold less than 25% of its equity, requiring BPI representations from all blocker investors, and including in the blocker's governing documents the GP-controlled right to decline admissions from BPI investors. If the blocker is used solely by Kingsbridge (a non-BPI endowment), no plan asset issue arises at either the blocker level or the Fund level.

V. TREATMENT OF SPECIFIC INVESTORS

This Section provides a detailed analysis of the BPI status of each identified prospective investor, together with specific recommendations for subscription documentation and diligence.

A. Northmoor State Pension System

Classification. The Northmoor State Pension System is a governmental plan within the meaning of ERISA § 3(32), which defines a "governmental plan" as a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. As a state governmental pension plan organized and maintained pursuant to the pension code of the State of Northmoor, the Northmoor State Pension System falls squarely within this definition.

ERISA exemption. ERISA § 4(b)(1) provides that ERISA Title I does not apply to any employee benefit plan that is a governmental plan as defined in Section 3(32). Accordingly, the Northmoor State Pension System is not subject to the fiduciary responsibility provisions of ERISA Title I, Part 4, and is not an employee benefit plan described in category (i) of the BPI definition.

IRC § 4975 exemption. IRC § 4975(g)(2) provides that the prohibited transaction excise tax provisions of IRC § 4975 do not apply to a governmental plan as defined in ERISA § 3(32). Accordingly, the Northmoor State Pension System is not a plan described in IRC § 4975(e)(1), and is not a BPI under category (ii) of the BPI definition.

Look-through rule. The Northmoor State Pension System invests its own plan assets, which are the assets of a governmental plan. There is no basis for treating Northmoor as a BPI under category (iii) (the look-through rule), because the look-through rule applies only to entities whose underlying assets include plan assets by reason of a plan's investment — and the relevant "plan" must be a plan that is itself a BPI (i.e., a plan subject to ERISA Title I, Part 4, or a plan described in IRC § 4975(e)(1)). Since governmental plan assets are not "plan assets" for purposes of the Plan Assets Regulation, no look-through applies.

Conclusion. The Northmoor State Pension System is NOT a benefit plan investor under 29 C.F.R. § 2510.3-101(f)(2). Its $200,000,000 commitment does not count toward the BPI numerator in the 25% test for any Fund Vehicle. However, its commitment IS included in the denominator of the 25% test, and it IS relevant for purposes of the VCOC 50% investment test.

Practical significance. Northmoor's anchor commitment of $200,000,000 provides significant denominator support for the Main Fund's BPI calculation. With Northmoor as the largest identified single commitment, the denominator is substantially increased, creating ample headroom for BPI participation by other investors. This is one of the structural advantages of having a large governmental plan investor as an anchor limited partner.

Additional considerations. Although not subject to ERISA, the Northmoor State Pension System is subject to its own state pension code and fiduciary standards, which may impose investment guidelines, reporting requirements, and other obligations on Northmoor's investment in the Fund. These state-law requirements do not affect the federal plan asset analysis but should be addressed in the course of side letter negotiations. We understand that a separate side letter for Northmoor is being negotiated and will address these matters independently.

B. The Kingsbridge Endowment Fund

Classification. The Kingsbridge Endowment Fund is a 501(c)(3) tax-exempt university endowment affiliated with Kingsbridge University. It invests the university's institutional endowment assets for the benefit of the university's educational mission. The endowment is not itself an "employee benefit plan" as defined in ERISA § 3(3), which defines an "employee benefit plan" as a plan established or maintained by an employer or employee organization (or both) for the purpose of providing benefits to employees and their beneficiaries. A university endowment is not established for the purpose of providing employee benefits — it is established for the purpose of supporting the university's educational, research, and charitable purposes.

IRC § 4975 analysis. A university endowment is not a "plan" described in IRC § 4975(e)(1). The plans described in that provision include employee benefit plans subject to ERISA Title I (other than governmental and church plans), IRAs described in IRC § 408(a), individual retirement annuities described in IRC § 408(b), Keogh plans, and certain other arrangements. A university endowment does not fall within any of these categories.

Commingling concern. The one area requiring careful inquiry is whether Kingsbridge University maintains employee benefit plans (such as a defined benefit pension plan, a 403(b) plan, or a 457(b) plan for university employees) and whether the assets of such plans are commingled with the endowment's general investment pool. Some universities commingle retirement plan assets with endowment assets for investment efficiency, investing both pools through the same investment vehicles and allocating returns proportionally. If Kingsbridge's endowment assets include commingled plan assets, a portion of the endowment's investment in the Fund could be attributable to plan assets, potentially triggering the look-through rule.

The standard analysis, however, is as follows: a university endowment that commingles retirement plan assets with endowment assets is not itself transformed into a plan asset entity for purposes of the Plan Assets Regulation. The endowment is a separate entity, and the 25% BPI test applies at the endowment level. If less than 25% of the endowment's total assets are attributable to employee benefit plan assets (which is typically the case for large university endowments, where the vast majority of assets are endowment gifts and investment returns rather than retirement plan contributions), the endowment is not a plan asset entity and is not a BPI.

Nonetheless, we recommend that the subscription documents require Kingsbridge to make a clear representation as to whether its assets include plan assets of any employee benefit plan subject to ERISA or IRC § 4975, and if so, the percentage of such plan assets relative to the endowment's total assets. If Kingsbridge represents that it is not investing plan assets, the inquiry is resolved and Kingsbridge is not a BPI.

blocker structure. If Kingsbridge invests through HGF V blocker Corp. (as currently anticipated), the blocker interposes an additional structural layer. Even if there were any residual ambiguity regarding Kingsbridge's BPI status, the blocker (as a C corporation) would be subject to its own independent BPI analysis. If Kingsbridge is the sole investor in the blocker and is not a BPI, the blocker's BPI percentage is 0%, and the blocker's investment in the Fund does not implicate the Fund's BPI threshold.

Recommendation. We recommend the following steps with respect to Kingsbridge:

(a) Require Kingsbridge's subscription documents (whether for the blocker, the Parallel Fund, or both) to include a representation that the endowment is not a BPI and that its subscription does not involve plan assets of any employee benefit plan subject to ERISA or IRC § 4975.

(b) Coordinate with Pelham Chambers LLP (Andrew K. Leverett), counsel to Kingsbridge, to confirm the factual basis for this representation and to obtain any supporting documentation regarding the composition of Kingsbridge's endowment assets.

C. Stonewall Partners Fund of Funds III LP

Classification. Stonewall Partners Fund of Funds III LP is a Delaware limited partnership organized as a fund of funds. As a fund of funds, Stonewall invests capital raised from its own limited partners into underlying private equity funds, including (if admitted) Harrowgate Private Equity Fund V LP. The BPI analysis for Stonewall is more complex than for the other identified investors because Stonewall's own underlying investors may include BPIs, triggering the look-through provisions of the Plan Assets Regulation.

Look-through analysis. Under 29 C.F.R. § 2510.3-101(f)(2)(iii), if Stonewall's own underlying assets include plan assets — that is, if BPIs hold 25% or more of any class of equity interests in Stonewall and Stonewall does not otherwise qualify for an exemption (such as VCOC status) — then Stonewall is itself treated as a BPI for purposes of Fund V's 25% test.

Two scenarios must be considered:

(a) Stonewall maintains its own sub-25% BPI threshold. If Stonewall Partners Fund of Funds III LP has structured its own fund to ensure that BPIs hold less than 25% of its equity interests, then Stonewall's assets are NOT plan assets, and Stonewall is NOT a BPI for purposes of Fund V's 25% test. In this scenario, Stonewall's $75,000,000 commitment to the Main Fund is included only in the denominator and not in the numerator. This is the most favorable outcome and eliminates any BPI concern associated with Stonewall's participation.

(b) Stonewall's assets ARE plan assets. If BPIs hold 25% or more of Stonewall's equity interests and Stonewall does not qualify as a VCOC or REOC, then Stonewall's assets are treated as plan assets, and Stonewall is a BPI. In this scenario, the treatment of Stonewall's $75,000,000 commitment in Fund V's BPI calculation depends on the methodology applied:

• Full inclusion approach: The entire $75,000,000 commitment is counted in the BPI numerator. This is the most conservative approach and is the approach most clearly supported by the regulatory text.

• Proportional approach: Only the portion of Stonewall's commitment attributable to plan assets is counted in the BPI numerator. For example, if Stonewall represents that 30% of its assets constitute plan assets, then $75,000,000 × 30% = $22,500,000 would be counted in the numerator. This approach has some support in DOL guidance and is used by many practitioners, but it is less clearly supported by the regulatory text and carries some interpretive risk.

Subscription agreement requirements. The subscription agreement for Stonewall must include the following representations and covenants:

(i) A representation as to whether Stonewall's assets constitute "plan assets" under the Plan Assets Regulation (i.e., whether BPIs hold 25% or more of Stonewall's equity and Stonewall does not qualify for an exemption).

(ii) If Stonewall's assets are plan assets, a representation as to the percentage of Stonewall's total assets that are attributable to plan assets.

(iii) An ongoing obligation to notify the GP promptly of any material change in Stonewall's plan asset status (for example, if Stonewall's BPI participation crosses the 25% threshold due to a new subscription or a withdrawal by a non-BPI investor).

(iv) An agreement to provide updated plan asset information upon the GP's reasonable request.

Recommendation. We recommend that HCP contact Bernard C. Molinaro at Stonewall Partners to request a preliminary representation and supporting documentation regarding the percentage of plan assets in Stonewall Fund of Funds III's capital base. This diligence should be completed prior to the First Close. If Stonewall is a BPI (under either the full inclusion or proportional approach), the BPI percentage for the Main Fund remains well below 25% at the anticipated First Close commitment levels, so Stonewall's participation does not jeopardize the Fund's plan asset avoidance strategy.

D. Edgecombe Insurance Group Ltd.

Classification. Edgecombe Insurance Group Ltd. is a Bermuda-domiciled insurance holding company. Insurance companies invest their general account assets in a wide range of investment vehicles, including private equity funds.

Insurance company general account assets. The treatment of insurance company general account assets under ERISA and the Plan Assets Regulation is governed by a special framework. Under ERISA § 401(b)(2) (which was added by the Small Business Job Protection Act of 1996 and further clarified by DOL regulations), the assets of an insurance company's general account are not treated as "plan assets" for purposes of the prohibited transaction rules of ERISA, provided that certain conditions are met. However, this provision addresses the treatment of the general account itself — not the treatment of the general account's investment in a pooled investment vehicle such as a private equity fund.

For purposes of the Plan Assets Regulation's BPI test, the relevant question is whether Edgecombe is a BPI — that is, whether it is (or is investing on behalf of) an employee benefit plan subject to ERISA Title I, Part 4, or a plan described in IRC § 4975(e)(1). An insurance company investing from its general account is not itself an employee benefit plan. Its general account assets may include reserves backing obligations to employee benefit plan customers (through guaranteed investment contracts, annuity contracts, and similar products), but the general account is not a separate account holding assets of a specific plan. The standard analysis is that an insurance company investing its general account assets in a private equity fund is not a BPI unless it is investing from a separate account that holds the assets of a specific identified employee benefit plan.

Separate account concern. If Edgecombe were investing from a "separate account" (a segregated account holding assets that are specifically attributable to a particular employee benefit plan customer), the separate account assets would be plan assets, and Edgecombe would be a BPI to the extent of the separate account investment. The subscription agreement should require Edgecombe to represent that it is investing from its general account (or other non-plan asset account) and not from a separate account holding assets of a U.S. employee benefit plan.

Non-U.S. domicile. As a Bermuda-domiciled entity, Edgecombe is not itself a U.S. employee benefit plan and is not a plan described in IRC § 4975(e)(1). The only basis on which Edgecombe could be a BPI is if it is investing plan assets of a U.S. employee benefit plan through the look-through rule. The subscription agreement representation should address this specifically.

Recommendation. Require Edgecombe to represent in its subscription agreement that it is not investing plan assets of any U.S. employee benefit plan and that its investment is from its general account or other proprietary assets. With this representation, Edgecombe is not a BPI, and its $150,000,000 commitment counts only in the denominator.

E. Velthorn Family Office LLC

Classification. Velthorn Family Office LLC is a Delaware limited liability company operating as a single-family office. Family offices invest the proprietary wealth of a single family and are not employee benefit plans. A family office investing its own wealth is not a BPI unless it is investing on behalf of an employee benefit plan (for example, if the family has established a defined benefit pension plan for employees of a family-controlled business and the plan's assets are invested through the family office).

Analysis. The standard subscription agreement BPI representations should be sufficient to confirm that Velthorn is investing proprietary family wealth and not plan assets of any employee benefit plan. If Velthorn represents that it is not a BPI and is not investing plan assets, its $50,000,000 commitment counts only in the denominator.

Recommendation. Include standard BPI representations in Velthorn's subscription agreement. No additional diligence is anticipated.

F. Tidewater Sovereign Investment Authority

Classification. The Tidewater Sovereign Investment Authority is a foreign sovereign wealth fund. Foreign sovereign wealth funds are not U.S. employee benefit plans, are not plans described in IRC § 4975(e)(1), and are not BPIs under any category of the BPI definition. As a governmental entity of a foreign sovereign, Tidewater is excluded from ERISA and IRC § 4975 by the same logic that excludes U.S. governmental plans — and indeed more clearly so, as ERISA and the Code apply only to U.S. employee benefit plans and plans maintained for U.S. employees.

Offshore Feeder analysis. Tidewater is investing through the Offshore Feeder (Harrowgate Fund V Offshore SLP), not directly in the Main Fund. Its investment through the Offshore Feeder does not implicate the Main Fund's BPI calculation, because the Offshore Feeder is a separate legal entity with its own independent BPI analysis. Tidewater's $175,000,000 commitment counts in the Offshore Feeder's denominator and not in its numerator.

Recommendation. Standard subscription agreement representations should be included in the Offshore Feeder's subscription documents to confirm non-BPI status. No additional diligence is anticipated for Tidewater.

VI. MONITORING FRAMEWORK

Maintaining compliance with the 25% BPI threshold is not a one-time exercise performed at the initial closing. It requires ongoing monitoring throughout the life of the Fund, particularly during the fundraising period (when new investors are being admitted at successive closings) and whenever transfers of limited partnership interests occur. This Section sets forth our recommended monitoring framework.

A. Initial Assessment at Each Closing

At each closing of the Fund — beginning with the First Close (targeted for August 15, 2025) and continuing through subsequent closings (rolling through the anticipated Final Close on or about February 15, 2027) — the BPI percentage must be calculated for each Fund Vehicle separately. This includes the Main Fund, the Parallel Fund, the Offshore Feeder, and the blocker.

The inputs for this calculation are as follows:

(a) BPI representations from subscription agreements and investor questionnaires. Each prospective limited partner will be required to complete a subscription agreement and investor suitability questionnaire containing specific BPI-related representations, as described in Section VII below. These representations will form the factual basis for the BPI calculation.

(b) Look-through information from fund-of-funds investors. For investors that are pooled investment vehicles (such as Stonewall Partners Fund of Funds III LP), the subscription agreement will require a representation as to whether the investor's assets constitute plan assets and, if so, the percentage of plan assets in the investor's capital base. This information is necessary to apply the look-through rule correctly.

(c) GP commitment information. The GP commitment of $50,000,000 by Harrowgate Fund V GP LLC will be included in the denominator in accordance with our recommended conservative approach.

The BPI calculation at each closing is to be performed by fund counsel (Calderwood & Harkness LLP) in coordination with the fund administrator (Pinnacle Fund Services LLC, key contact David L. Prentiss, Senior Vice President, F

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
TO: Catherine E. Loomis, General Counsel & Chief Compliance Officer, Harrowgate Capital Partners LLC Jonathan P. Birch, Partner, Head of Operations & Chief Financial Officer, Harrowgate Capital Partners LLC
FROM: Sylvia Hartwell, Specialist Partner, Tax, Calderwood & Harkness LLP Stephen Adler, Lead Associate, Funds & Asset Management, Calderwood & Harkness LLP
DATE: April 28, 2025
RE: ERISA Analysis — Benefit Plan Investor Threshold and Plan Asset Avoidance for Harrowgate Private Equity Fund V LP and Related Vehicles
MATTER NO.: 1003-00002
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I. EXECUTIVE SUMMARY
You have asked us to analyze the regulatory framework under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Department of Labor's ("DOL") "plan assets" regulation, codified at 29 C.F.R. § 2510.3-101 (as modified by Section 3(42) of ERISA) (the "Plan Assets Regulation"), as applied to the fund vehicles being organized in connection with Harrowgate Private Equity Fund V LP (the "Main Fund"), Harrowgate Fund V Parallel LP (the "Parallel Fund"), Harrowgate Fund V Offshore SLP (the "Offshore Feeder"), and HGF V blocker Corp. (the "Blocker," and together with the Main Fund, the Parallel Fund, and the Offshore Feeder, the "Fund" or the "Fund Vehicles"). The purpose of this memorandum is to provide a comprehensive analysis of the plan asset rules and to set forth specific recommendations for structuring the Fund Vehicles to avoid having the Fund's underlying assets treated as "plan assets" subject to ERISA's fiduciary and prohibited transaction rules.
The overarching objective is straightforward but critical: each of the Fund Vehicles must be structured and managed so that none of the Fund's underlying assets — including portfolio company equity, debt instruments, cash held in Fund accounts, and any other investments or holdings — are treated as "plan assets" for purposes of ERISA. If any Fund Vehicle were to hold "plan assets," the General Partner (Harrowgate Fund V GP LLC) and the investment adviser (Harrowgate Capital Partners LLC) would be deemed ERISA fiduciaries, and all transactions involving Fund assets would be subject to the prohibited transaction rules of ERISA §§ 406–408 and the parallel excise tax provisions of Internal Revenue Code ("IRC" or the "Code") § 4975. Such a result would impose substantial operational constraints, personal fiduciary liability, and potential excise tax exposure that are fundamentally incompatible with the operation of a private equity fund.
The primary mechanism for avoiding plan asset treatment is well established: limiting "benefit plan investors" (as defined in 29 C.F.R. § 2510.3-101(f)(2)) ("BPIs") to less than twenty-five percent (25%) of each class of equity interests in each Fund Vehicle. This is the so-called "25% BPI threshold" or the "significance test." If BPI participation remains below this threshold, the underlying assets of the relevant Fund Vehicle are not treated as plan assets, and ERISA's fiduciary and prohibited transaction requirements do not apply to the Fund's operations.
Based on our analysis of the anticipated investor base, the proposed fund structure, and the applicable regulatory framework, we conclude as follows:
• The Fund is well-positioned to maintain BPI participation below 25% across all Fund Vehicles at the anticipated First Close and through the Final Close, provided that appropriate monitoring mechanisms, subscription agreement representations, and structural safeguards are implemented as described herein.
• The Northmoor State Pension System, as a governmental plan exempt from ERISA Title I and not described in IRC § 4975(e)(1), is not a BPI. Its substantial anchor commitment of $200,000,000 to the Main Fund provides significant denominator support, thereby creating ample headroom for BPI participation by other investors.
• The Kingsbridge Endowment Fund, as a 501(c)(3) university endowment investing its own institutional endowment assets (and not plan assets of any employee benefit plan), is not expected to be a BPI, and its anticipated investment through the blocker (HGF V blocker Corp.) provides an additional structural layer of insulation.
• Among the currently identified investor pipeline, the only investor that presents meaningful BPI analysis complexity is Stonewall Partners Fund of Funds III LP, which, as a fund of funds, may hold plan assets of its own underlying investors. This issue is manageable through appropriate representations and look-through calculations.
• As a secondary safeguard, the Fund can seek to qualify as a "venture capital operating company" ("VCOC") under 29 C.F.R. § 2510.3-101(d), which would exempt the Fund from plan asset treatment regardless of the level of BPI participation. Given the Fund's buyout strategy, VCOC qualification is likely achievable, though we recommend maintaining the sub-25% BPI threshold as the primary compliance strategy.
This memorandum is organized as follows: Section II sets forth the relevant background regarding the Fund structure, the Firm, and the anticipated limited partners. Section III describes the legal framework governing plan asset determination. Sections IV and V apply the legal framework to each Fund Vehicle and each identified investor, respectively. Sections VI through X address monitoring, subscription documentation, PPM disclosure, VCOC analysis, and the interaction with the blocker structure. Section XI presents illustrative BPI calculations under various scenarios. Section XII sets forth our specific recommendations and action items. Section XIII provides our conclusion.
II. BACKGROUND
A. The Fund Structure
The Fund is being organized as a multi-vehicle private equity fund structure consisting of the following entities:
Harrowgate Private Equity Fund V LP (the "Main Fund"). The Main Fund is a Delaware limited partnership to be formed under the Delaware Revised Uniform Limited Partnership Act. The Main Fund has a target hard cap of Two Billion Dollars ($2,000,000,000). It will serve as the primary investment vehicle for institutional limited partners seeking to invest alongside Harrowgate Capital Partners LLC in the Fund's buyout strategy. The general partner of the Main Fund is Harrowgate Fund V GP LLC (as described below). The Main Fund's limited partnership agreement (the "LPA") is currently in initial draft form, with a target circulation date of May 9, 2025.
Harrowgate Fund V Parallel LP (the "Parallel Fund"). The Parallel Fund is a Delaware limited partnership that will invest alongside the Main Fund on a pro rata basis in each portfolio investment. The Parallel Fund is being organized principally for certain tax-exempt and non-U.S. limited partners that require structural separation from the Main Fund for tax, regulatory, or operational reasons. The Parallel Fund will have its own limited partnership agreement and will maintain a separate capital account structure, but investment decisions will be made by the same General Partner and investment adviser as the Main Fund, and all investments will be made on a pari passu basis with the Main Fund (subject to allocation adjustments for tax or regulatory purposes).
Harrowgate Fund V Offshore SLP (the "Offshore Feeder"). The Offshore Feeder is a Cayman Islands exempted limited partnership to be formed under the Cayman Islands Exempted Limited Partnership Act (as revised). The Offshore Feeder serves as an offshore feeder vehicle for non-U.S. investors that prefer or require a non-U.S. investment vehicle for tax, regulatory, or other reasons. The Offshore Feeder may invest directly in portfolio investments alongside the Main Fund and the Parallel Fund or may invest through the Main Fund as a limited partner, depending on the final structuring determination.
HGF V blocker Corp. (the "Blocker"). The blocker is a Delaware C corporation to be formed under the Delaware General Corporation Law. The blocker is a "Blocker" entity designed for certain tax-exempt investors — principally The Kingsbridge Endowment Fund — to mitigate exposure to unrelated business taxable income ("UBTI") under IRC §§ 511–514. The blocker will hold a limited partnership interest in the Main Fund or the Parallel Fund (as determined in the final structuring), and tax-exempt investors will hold equity interests (shares of common stock) in the blocker rather than direct partnership interests in the Fund. The blocker will be subject to corporate-level federal income tax, but this structure is typically preferable for tax-exempt investors that wish to avoid the direct recognition of UBTI arising from the Fund's use of acquisition leverage.
Harrowgate Fund V GP LLC (the "General Partner" or "GP"). The General Partner is a Delaware limited liability company whose sole member is Harrowgate Capital Partners LLC. The General Partner will serve as the general partner of the Main Fund and the Parallel Fund and will have exclusive responsibility for the management, control, and operation of the Fund Vehicles (subject to the terms of the applicable partnership agreements). The General Partner intends to make a GP commitment of Fifty Million Dollars ($50,000,000), representing 2.5% of the Main Fund's $2.0 billion hard cap, to be funded alongside the limited partners' capital contributions on a pro rata basis.
B. Harrowgate Capital Partners LLC
Harrowgate Capital Partners LLC ("HCP" or the "Firm") is a Delaware limited liability company and a registered investment adviser under the Investment Advisers Act of 1940, as amended (SEC File No. 801-79223; CRD No. 298417). HCP's principal offices are located at 1200 Concord Pike, Suite 600, Wilmington, Delaware 19803.
HCP manages a family of private equity funds focused on North American mid-market and upper-mid-market buyouts. As of the date of this memorandum, HCP manages assets across Funds I through IV with aggregate assets under management of approximately $5.8 billion. HCP's investment strategy targets control and significant minority positions in operating companies in the industrials, business services, healthcare services, and technology-enabled services sectors, with typical equity checks ranging from $75 million to $250 million per transaction.
The key personnel of HCP relevant to this analysis include:
• Marcus J. Harrowgate — Founder, Managing Partner, and Chief Investment Officer
• Diana R. Castellano — Partner, Co-Head of Investments
• Jonathan P. Birch — Partner, Head of Operations, and Chief Financial Officer
• Catherine E. Loomis — General Counsel and Chief Compliance Officer
C. Anticipated Limited Partners with ERISA Relevance
The fundraising pipeline for Fund V currently includes the following identified prospective limited partners, each of which raises ERISA-related considerations that are addressed in detail in Section V below:
Northmoor State Pension System. The Northmoor State Pension System is a state governmental pension plan organized and maintained pursuant to the pension code of the State of Northmoor. Northmoor has indicated an anticipated commitment of Two Hundred Million Dollars ($200,000,000) to the Main Fund. The key contact for Northmoor is Helen T. Barrows, Director of Private Markets, with offices at 400 Capitol Boulevard, Suite 1100, Northmoor City, Northmoor. As a governmental plan, Northmoor's commitment is of particular significance to the BPI analysis because governmental plans are not BPIs but do contribute to the denominator of the 25% test, thereby providing valuable headroom.
The Kingsbridge Endowment Fund. The Kingsbridge Endowment Fund is a 501(c)(3) tax-exempt university endowment affiliated with Kingsbridge University. Kingsbridge has indicated an anticipated commitment of One Hundred Million Dollars ($100,000,000). The key contact is Dr. Philip W. Sheng, Chief Investment Officer, with offices at 88 University Drive, Kingsbridge, Massachusetts 02140. Kingsbridge intends to invest via the blocker (HGF V blocker Corp.) or the Parallel Fund to mitigate UBTI exposure. The characterization of Kingsbridge's investment as BPI or non-BPI depends on whether its assets include plan assets of any employee benefit plan, as discussed in detail below.
Edgecombe Insurance Group Ltd. Edgecombe Insurance Group Ltd. is a Bermuda-domiciled insurance holding company with an anticipated commitment of One Hundred Fifty Million Dollars ($150,000,000) to the Main Fund. Edgecombe is expected to invest from its general account assets.
Velthorn Family Office LLC. Velthorn Family Office LLC is a Delaware limited liability company operating as a single-family office, with an anticipated commitment of Fifty Million Dollars ($50,000,000) to the Main Fund. Velthorn invests proprietary family wealth and is not expected to invest on behalf of any employee benefit plan.
Tidewater Sovereign Investment Authority. The Tidewater Sovereign Investment Authority is a foreign sovereign wealth fund with an anticipated commitment of One Hundred Seventy-Five Million Dollars ($175,000,000), to be invested via the Offshore Feeder. As a foreign sovereign entity, Tidewater is not a U.S. employee benefit plan and is not a BPI.
Stonewall Partners Fund of Funds III LP. Stonewall Partners Fund of Funds III LP is a Delaware limited partnership organized as a fund of funds, with an anticipated commitment of Seventy-Five Million Dollars ($75,000,000) to the Main Fund. The key contact is Bernard C. Molinaro, Managing Director. As a fund of funds, Stonewall presents the most significant BPI analysis issue among the currently identified pipeline investors, because its underlying investors may include benefit plan investors, triggering the look-through provisions of the Plan Assets Regulation.
The total identified fundraising pipeline as of the date of this memorandum is Seven Hundred Fifty Million Dollars ($750,000,000), which equals the Minimum First Close target for the Fund.
III. LEGAL FRAMEWORK
A. ERISA Section 3(42) and the Plan Assets Regulation
The starting point for any plan asset analysis is ERISA Section 3(42), which provides that the term "plan assets" has the meaning given such term by regulations prescribed by the Secretary of Labor. This provision was added by the Pension Protection Act of 2006 and effectively codified the DOL's longstanding regulatory framework for determining when the assets of an entity in which a plan invests are treated as plan assets of the investing plan.
The DOL's Plan Assets Regulation, codified at 29 C.F.R. § 2510.3-101 (as amended by 29 C.F.R. § 2510.3-101(a)(2)), sets forth the rules for determining when an equity investment by a plan in another entity causes the underlying assets of that entity to be treated as plan assets of the investing plan. The regulation was originally promulgated in 1986 and has been amended on several occasions, most recently in connection with the codification of Section 3(42).
The basic rule is as follows: when a plan acquires an "equity interest" in an entity that is not a "publicly offered security" and equity participation by "benefit plan investors" is "significant," the underlying assets of the entity are treated as plan assets of the investing plan. 29 C.F.R. § 2510.3-101(a)(2). For purposes of this rule, an "equity interest" is defined broadly to include any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and that has no substantial equity features. 29 C.F.R. § 2510.3-101(b)(1). Limited partnership interests in a limited partnership are equity interests within the meaning of the regulation.
The term "publicly offered security" is defined in 29 C.F.R. § 2510.3-101(b)(2) to include securities that are freely transferable, part of a widely held class of securities, and either registered under the Securities Exchange Act of 1934 or sold pursuant to an effective registration statement under the Securities Act of 1933 (subject to certain conditions). None of the Fund Vehicles will issue publicly offered securities. Accordingly, the publicly offered securities exemption is not available.
The critical determination, therefore, is whether equity participation by BPIs in any Fund Vehicle is "significant" — that is, whether BPIs hold 25% or more of any class of equity interests in the vehicle.
The consequences of plan asset treatment are severe and far-reaching. If the underlying assets of a Fund Vehicle were treated as plan assets:
(a) The General Partner (Harrowgate Fund V GP LLC) and the investment adviser (Harrowgate Capital Partners LLC) would be deemed ERISA fiduciaries with respect to the Fund's assets, subject to the fiduciary duties of prudence, loyalty, diversification, and compliance with plan documents set forth in ERISA §§ 404 and 405.
(b) All transactions involving Fund assets would be subject to the prohibited transaction rules of ERISA §§ 406–408, which broadly prohibit transactions between a plan and "parties in interest" (including fiduciaries, service providers, and their affiliates). The parallel excise tax provisions of IRC § 4975 would also apply, imposing a two-tier excise tax on "disqualified persons" who engage in prohibited transactions.
(c) Extensive reporting obligations would apply, including the filing of annual reports on Form 5500 and compliance with the bonding requirements of ERISA § 412.
(d) The General Partner and investment adviser would be subject to personal liability for fiduciary breaches, including the obligation to make the plan whole for any losses resulting from a breach and to disgorge any profits earned through the use of plan assets.
(e) The co-fiduciary liability rules of ERISA § 405 could extend liability to other persons who knowingly participate in or fail to remedy a fiduciary breach.
In short, plan asset treatment would fundamentally alter the legal and operational framework governing the Fund and would create compliance obligations and liability exposure that are incompatible with the Fund's investment strategy and operations. For these reasons, maintaining compliance with the 25% BPI threshold is of paramount importance.
B. Definition of "Benefit Plan Investor"
The term "benefit plan investor" is defined in 29 C.F.R. § 2510.3-101(f)(2) to include three categories of investors:
(i) Employee benefit plans subject to ERISA Title I, Part 4. This category encompasses private-sector pension plans (both defined benefit and defined contribution) and welfare benefit plans (health, life insurance, disability, etc.) that are subject to the fiduciary responsibility provisions of Part 4 of Title I of ERISA. This is the most commonly encountered category of BPIs and includes corporate pension plans, 401(k) plans, profit-sharing plans, and similar arrangements maintained by private-sector employers.
(ii) Plans described in IRC § 4975(e)(1). This category encompasses plans that are subject to the prohibited transaction excise tax provisions of the Internal Revenue Code, including individual retirement accounts ("IRAs"), individual retirement annuities, Keogh plans (H.R. 10 plans) covering self-employed individuals, and certain other tax-favored retirement arrangements. This category overlaps substantially with category (i) but also captures plans (such as IRAs) that are not subject to ERISA Title I but are subject to the prohibited transaction rules of the Code.
(iii) Entities whose underlying assets include plan assets (the "look-through" rule). This category captures entities that are themselves holding plan assets by reason of a plan's investment in the entity. In other words, if an investing entity (such as a fund of funds) has failed to maintain the sub-25% BPI threshold or has not otherwise avoided plan asset treatment, that entity is itself treated as a BPI, and its investment in the Fund must be counted in the BPI numerator for the Fund's 25% test. The amount to be included in the numerator is the full amount of the entity's investment (or, under certain interpretive approaches, the portion of the entity's investment attributable to plan assets).
Several categories of investors are expressly excluded from the definition of BPI or are otherwise not subject to the Plan Assets Regulation:
Governmental plans. Plans established and maintained by federal, state, or local governmental entities for the benefit of their employees are "governmental plans" as defined in ERISA § 3(32) and are exempt from ERISA Title I pursuant to ERISA § 4(b)(1). Governmental plans are also not plans described in IRC § 4975(e)(1), because IRC § 4975(g)(2) expressly excludes governmental plans from the application of the prohibited transaction excise tax. Accordingly, governmental plans are not BPIs under any of the three categories set forth above. The Northmoor State Pension System falls squarely within this exclusion, as discussed in detail in Section V.A below.
Church plans. Plans established and maintained by churches or conventions or associations of churches that have not elected coverage under ERISA pursuant to ERISA § 410(d) are similarly excluded from ERISA Title I and are not plans described in IRC § 4975(e)(1). Such plans are not BPIs. No church plans have been identified among the anticipated investor base for Fund V.
Non-U.S. plans and foreign governmental entities. Plans established and maintained outside the United States for the benefit of non-U.S. employees are generally not subject to ERISA or IRC § 4975 and are therefore not BPIs. Similarly, foreign governmental entities (such as the Tidewater Sovereign Investment Authority) are not BPIs. However, if a non-U.S. entity is investing plan assets of a U.S. employee benefit plan (for example, a non-U.S. subsidiary maintaining a U.S.-based benefit plan), the look-through rule could apply.
C. The 25% Test — Calculation Methodology
The 25% BPI threshold is the central quantitative test under the Plan Assets Regulation. The test is applied as follows:
Class-by-class analysis. The 25% threshold is measured on each class of equity interests in the entity, not on an aggregate basis across all classes or across all Fund Vehicles. If a Fund Vehicle has only a single class of equity interests (as is the case for each of the Fund Vehicles under consideration), the test is applied to that single class. If multiple classes exist (for example, if a fund were to issue both Class A and Class B limited partnership interests with different economic terms), the test must be applied separately to each class.
Separate vehicle analysis. Each Fund Vehicle is a separate legal entity with its own equity interests. The 25% test is applied independently to each Fund Vehicle. Thus, the Main Fund, the Parallel Fund, the Offshore Feeder, and the blocker each have their own separate 25% calculation.
The formula. The BPI percentage for a given class of equity interests is calculated as:
BPI Percentage = (Aggregate Value of Equity Interests Held by BPIs) / (Total Value of All Equity Interests in the Relevant Class) × 100
For a limited partnership in the fundraising and investment period, "value" is typically measured by reference to capital commitments (or, in some cases, contributed capital). For purposes of this memorandum, we use capital commitments as the relevant metric, which is the standard approach during the fundraising period.
Treatment of the GP commitment. The Plan Assets Regulation does not expressly exclude the general partner's equity interest from the denominator. Under certain interpretive positions advanced by practitioners, the GP's interest could be excluded from the denominator on the theory that the GP's interest is not of the same "class" as the limited partners' interests. However, the more conservative and widely accepted approach is to include the GP's commitment in the denominator. This approach is more protective because including the GP's commitment in the denominator increases the denominator and thereby reduces the BPI percentage. We recommend applying the conservative approach and including the GP's $50,000,000 commitment in the denominator of the Main Fund's 25% calculation. This approach provides an additional margin of safety.
Timing of the test. The 25% test must be satisfied at each "valuation date." The regulation provides that a valuation date occurs on each date on which equity interests are acquired by or on behalf of a BPI or on which equity interests are redeemed. 29 C.F.R. § 2510.3-101(f)(1). In the context of a closed-end private equity fund with multiple closings, a valuation date occurs at each closing (when new limited partners are admitted and new equity interests are issued). A valuation date also occurs upon any transfer of limited partnership interests (when the transferee acquires the interest). Accordingly, the BPI percentage must be calculated and verified at each closing and upon any transfer of interests.
The look-through rule for fund-of-funds investors. The look-through rule in 29 C.F.R. § 2510.3-101(f)(2)(iii) requires careful attention when a prospective investor is itself an entity that may hold plan assets. If an investing entity's own underlying assets include plan assets (because BPIs hold 25% or more of the investing entity's equity and the entity does not qualify for an exemption), the investing entity is treated as a BPI for purposes of the Fund's 25% test. In that case, the full amount of the investing entity's commitment to the Fund is counted in the BPI numerator.
Alternatively, under certain DOL guidance, if the investing entity holds plan assets but can identify and segregate the portion of its commitment attributable to plan assets, only that portion may need to be counted in the BPI numerator. The practical approach is to require the investing entity to represent its plan asset status and, if applicable, the percentage of its assets constituting plan assets.
This look-through analysis is directly relevant to Stonewall Partners Fund of Funds III LP, as discussed in Section V.C below. Stonewall must represent whether its assets constitute plan assets and, if so, the percentage of plan assets in its capital base. If Stonewall maintains its own sub-25% BPI threshold and is not otherwise a plan asset entity, its $75,000,000 commitment does not count in the Fund's BPI numerator at all. If Stonewall's assets are plan assets (because its own BPI participation exceeds 25%), the full $75,000,000 (or the relevant portion attributable to plan assets, depending on the methodology applied) is counted in the numerator.
D. Exemptions: VCOC and REOC Status
Even if the 25% BPI threshold were exceeded, the Fund could avoid plan asset treatment if it qualifies as either a "venture capital operating company" ("VCOC") or a "real estate operating company" ("REOC") under 29 C.F.R. § 2510.3-101(d) and (e), respectively.
VCOC qualification. An entity qualifies as a VCOC if it satisfies two requirements:
(a) The 50% investment test. At least 50% of the entity's assets (valued at cost) must be invested in "venture capital investments." A "venture capital investment" is defined as an investment in equity securities of an operating company as to which the entity obtains "management rights" — i.e., contractual rights to participate in or substantially influence the management of the operating company. Typical management rights include board representation, board observer rights, veto rights over significant corporate actions (such as mergers, asset sales, incurrence of indebtedness, changes in business strategy, and capital expenditures above specified thresholds), and consent rights over annual budgets and key personnel decisions.
(b) The annual exercise requirement. The entity must actually exercise its management rights with respect to at least one portfolio company in each annual period. Mere possession of management rights is insufficient; the rights must be affirmatively exercised. This requirement is typically satisfied through active board participation, exercise of consent or veto rights, or other substantive involvement in the management of portfolio companies.
Given HPE Fund V's buyout strategy — which targets control and significant minority positions in North American mid-market and upper-mid-market operating companies in the industrials, business services, healthcare services, and technology-enabled services sectors, with typical equity checks of $75 million to $250 million — VCOC qualification is likely achievable. In a typical leveraged buyout, the fund sponsor obtains comprehensive management rights through board representation, shareholder agreements, and governance provisions in the acquisition documentation. The exercise of such rights is a core part of the fund's value-creation strategy and occurs as a matter of course in the ordinary operation of the fund's portfolio.
REOC qualification. An entity qualifies as a REOC if at least 50% of its assets (valued at fair market value) are invested in real estate that is managed or developed, and the entity is engaged in real estate management or development activities with respect to such assets. Given that Fund V's strategy does not involve real estate investment, REOC qualification is not available and is not further discussed in this memorandum.
Key distinction: VCOC denominator. An important distinction between the 25% BPI test and the VCOC 50% investment test is that the VCOC test includes all investors in the denominator, including governmental plans. Thus, Northmoor State Pension System's $200,000,000 commitment is included in the total asset base against which the 50% venture capital investment test is measured. This does not affect the BPI analysis but is relevant for VCOC compliance planning.
Our recommendation. We recommend that the Fund maintain the sub-25% BPI threshold as the primary plan asset avoidance strategy and treat VCOC qualification as a secondary safeguard. The sub-25% approach is simpler to maintain, does not constrain the Fund's investment activity or portfolio construction, and does not require the Fund to ensure that management rights are obtained in at least 50% of investments (by cost) and exercised annually. By contrast, VCOC compliance imposes ongoing operational requirements that, if inadvertently breached, could result in plan asset treatment. Nonetheless, as a belt-and-suspenders measure, we recommend including a VCOC operating covenant in the LPA, as discussed in Section IX below.
IV. APPLICATION TO FUND V VEHICLES
This Section applies the legal framework described in Section III to each of the four Fund Vehicles, analyzing the BPI exposure and plan asset risk for each vehicle independently.
A. Main Fund — Harrowgate Private Equity Fund V LP
The Main Fund will be structured as a Delaware limited partnership with a single class of limited partnership interests. The 25% BPI test therefore applies to that single class.
Anticipated direct investors in the Main Fund. Based on the current fundraising pipeline, the following investors are anticipated to invest directly in the Main Fund:
The Kingsbridge Endowment Fund ($100,000,000) is expected to invest via the blocker or the Parallel Fund, not directly in the Main Fund. If Kingsbridge invests through HGF V blocker Corp., the blocker would hold a limited partnership interest in the Main Fund (or Parallel Fund) as a single investor. The blocker is a C corporation, not an employee benefit plan or a plan described in IRC § 4975(e)(1). The look-through analysis with respect to the blocker's investment in the Main Fund depends on whether the blocker itself is a plan asset entity — that is, whether BPIs hold 25% or more of the blocker's equity. As discussed in Section IV.D below, if Kingsbridge is the sole investor in the blocker and is not a BPI, the blocker is not a plan asset entity and its investment in the Main Fund does not count in the BPI numerator.
Illustrative BPI calculation at First Close. Assuming the First Close occurs at the Minimum First Close target of $750,000,000 and that the Main Fund commitments total $525,000,000 (the four direct Main Fund investors listed above, plus the GP commitment), the BPI calculation would be as follows:
Scenario A: Stonewall is NOT a BPI (i.e., Stonewall maintains its own sub-25% BPI threshold and its assets are not plan assets):
• BPI numerator: $0
• Total equity interests (denominator): $525,000,000
• BPI percentage: 0.0%
Scenario B: Stonewall IS a BPI (i.e., Stonewall's own BPI participation exceeds 25% and its assets are treated as plan assets, with the full commitment counted in the numerator):
• BPI numerator: $75,000,000
• Total equity interests (denominator): $525,000,000
• BPI percentage: $75,000,000 / $525,000,000 = approximately 14.3%
Scenario C: Stonewall is a plan asset entity, but only 30% of its assets are attributable to plan assets (a conservative look-through approach):
• BPI numerator: $75,000,000 × 30% = $22,500,000
• Total equity interests (denominator): $525,000,000
• BPI percentage: $22,500,000 / $525,000,000 = approximately 4.3%
In all three scenarios, the BPI percentage is well below 25%. Even under the most aggressive assumption (Scenario B), the BPI percentage is only 14.3%, leaving approximately $56.25 million of additional headroom before reaching the 25% threshold at the current commitment level (i.e., the Fund could accept an additional approximately $56.25 million from BPIs before reaching 25% of $525 million). As the Main Fund grows toward its hard cap through subsequent closings, the denominator increases, providing even more headroom.
Subsequent closings. At each subsequent closing (through the anticipated Final Close on or about February 15, 2027), additional limited partners will be admitted, and the BPI percentage must be recalculated. As long as the proportion of BPI commitments remains below 25% of the expanding denominator, the Fund will maintain compliance. The GP should track BPI participation prospectively before admitting new investors and should have the contractual right to decline or reduce commitments if necessary.
B. Parallel Fund — Harrowgate Fund V Parallel LP
The Parallel Fund is a separate Delaware limited partnership with its own class of equity interests. The 25% BPI test applies independently to the Parallel Fund, and the BPI analysis must be performed separately from the Main Fund.
The Parallel Fund is being organized principally for certain tax-exempt and non-U.S. limited partners requiring structural separation. If The Kingsbridge Endowment Fund invests directly in the Parallel Fund (rather than through the blocker), the BPI characterization of Kingsbridge becomes directly relevant to the Parallel Fund's 25% calculation.
As discussed in greater detail in Section V.B below, university endowments are generally not themselves employee benefit plans under ERISA or plans described in IRC § 4975(e)(1). A university endowment invests its own institutional assets — which may include gifts, bequests, investment returns, and other endowment income — for the benefit of the university's educational mission. The endowment is not established or maintained for the purpose of providing benefits to employees and is not an "employee benefit plan" within the meaning of ERISA § 3(3).
However, a university may maintain separate employee benefit plans (such as a defined benefit pension plan, a 403(b) plan, or a 457 plan for university employees), and in some instances, the assets of such plans may be commingled with the university's general endowment for investment purposes. If Kingsbridge's endowment assets include commingled plan assets, a look-through analysis could be triggered. The standard practice is to require the endowment to represent in its subscription agreement whether its assets include plan assets of any employee benefit plan subject to ERISA or IRC § 4975.
If Kingsbridge represents that its endowment assets do not include plan assets, it is not a BPI, and its commitment does not count in the Parallel Fund's BPI numerator. This is the expected outcome based on our preliminary understanding of Kingsbridge's investment structure.
Monitoring. The GP should separately track BPI participation in the Parallel Fund at each closing and upon any transfer of interests. Given that the Parallel Fund may have a smaller investor base than the Main Fund, even a single BPI investor could represent a larger percentage of the total equity interests, making careful monitoring particularly important.
C. Offshore Feeder — Harrowgate Fund V Offshore SLP
The Offshore Feeder is a Cayman Islands exempted limited partnership designed for non-U.S. investors. The 25% BPI test applies independently to the Offshore Feeder.
The anticipated primary investor in the Offshore Feeder is the Tidewater Sovereign Investment Authority, a foreign sovereign wealth fund with an anticipated commitment of $175,000,000. As a foreign sovereign entity, Tidewater is not a U.S. employee benefit plan, is not a plan described in IRC § 4975(e)(1), and is not a BPI. Other anticipated investors in the Offshore Feeder are expected to be non-U.S. institutional investors (pension funds, sovereign wealth funds, insurance companies, and other institutional allocators domiciled outside the United States), none of which would be BPIs unless they are investing plan assets of a U.S. employee benefit plan.
BPI exposure in the Offshore Feeder is expected to be negligible or zero. Nonetheless, the subscription documents for the Offshore Feeder should include BPI representations to capture any investor that may be investing plan assets of a U.S. employee benefit plan. This is a precautionary measure to ensure that BPI status is identified and tracked for all investors across all vehicles.
D. Blocker — HGF V blocker Corp.
The blocker is being formed as a Delaware C corporation primarily to address UBTI concerns for tax-exempt investors, principally The Kingsbridge Endowment Fund. The ERISA intersection with the blocker structure warrants careful analysis.
The blocker as a separate entity for BPI purposes. HGF V blocker Corp. is a separate legal entity — a C corporation — with its own equity interests (shares of common stock). The Plan Assets Regulation applies to the blocker independently. If BPIs hold 25% or more of the blocker's equity (i.e., 25% or more of its outstanding common stock), the blocker's underlying assets — including its limited partnership interest in the Main Fund or Parallel Fund — would be treated as plan assets.
However, if BPIs hold less than 25% of the blocker's equity, the blocker's assets are not plan assets, and the blocker is not itself a BPI. In that case, the blocker's investment in the Main Fund (or Parallel Fund) is treated as an investment by a single non-BPI investor, and the full amount of the blocker's commitment to the Fund counts only in the denominator (not the numerator) of the Fund's 25% BPI calculation.
Kingsbridge as the sole blocker investor. If The Kingsbridge Endowment Fund is the sole investor in the blocker and Kingsbridge is not a BPI (as expected), then:
• The blocker's BPI percentage is 0% (no BPIs hold equity in the blocker).
• The blocker's assets are not plan assets.
• The blocker is not a BPI.
• The blocker's investment in the Main Fund or Parallel Fund does not count in the BPI numerator for the relevant Fund Vehicle.
This structure provides an additional layer of insulation against plan asset treatment. Even if there were any ambiguity regarding Kingsbridge's BPI status (for example, if Kingsbridge's endowment were found to include commingled plan assets), the interposition of the blocker as a C corporation creates a separate entity-level analysis that can independently maintain the sub-25% threshold.
Additional investors through the blocker. If additional tax-exempt investors invest through the blocker, the BPI status of each additional investor must be assessed, and the BPI percentage for the blocker's equity must be calculated independently. The blocker's certificate of incorporation and bylaws should include provisions permitting the blocker's board of directors (which will be controlled by HCP) to decline subscriptions from BPIs if necessary to maintain the sub-25% threshold at the blocker level.
Recommendation. We recommend structuring the blocker so that BPIs hold less than 25% of its equity, requiring BPI representations from all blocker investors, and including in the blocker's governing documents the GP-controlled right to decline admissions from BPI investors. If the blocker is used solely by Kingsbridge (a non-BPI endowment), no plan asset issue arises at either the blocker level or the Fund level.
V. TREATMENT OF SPECIFIC INVESTORS
This Section provides a detailed analysis of the BPI status of each identified prospective investor, together with specific recommendations for subscription documentation and diligence.
A. Northmoor State Pension System
Classification. The Northmoor State Pension System is a governmental plan within the meaning of ERISA § 3(32), which defines a "governmental plan" as a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing. As a state governmental pension plan organized and maintained pursuant to the pension code of the State of Northmoor, the Northmoor State Pension System falls squarely within this definition.
ERISA exemption. ERISA § 4(b)(1) provides that ERISA Title I does not apply to any employee benefit plan that is a governmental plan as defined in Section 3(32). Accordingly, the Northmoor State Pension System is not subject to the fiduciary responsibility provisions of ERISA Title I, Part 4, and is not an employee benefit plan described in category (i) of the BPI definition.
IRC § 4975 exemption. IRC § 4975(g)(2) provides that the prohibited transaction excise tax provisions of IRC § 4975 do not apply to a governmental plan as defined in ERISA § 3(32). Accordingly, the Northmoor State Pension System is not a plan described in IRC § 4975(e)(1), and is not a BPI under category (ii) of the BPI definition.
Look-through rule. The Northmoor State Pension System invests its own plan assets, which are the assets of a governmental plan. There is no basis for treating Northmoor as a BPI under category (iii) (the look-through rule), because the look-through rule applies only to entities whose underlying assets include plan assets by reason of a plan's investment — and the relevant "plan" must be a plan that is itself a BPI (i.e., a plan subject to ERISA Title I, Part 4, or a plan described in IRC § 4975(e)(1)). Since governmental plan assets are not "plan assets" for purposes of the Plan Assets Regulation, no look-through applies.
Conclusion. The Northmoor State Pension System is NOT a benefit plan investor under 29 C.F.R. § 2510.3-101(f)(2). Its $200,000,000 commitment does not count toward the BPI numerator in the 25% test for any Fund Vehicle. However, its commitment IS included in the denominator of the 25% test, and it IS relevant for purposes of the VCOC 50% investment test.
Practical significance. Northmoor's anchor commitment of $200,000,000 provides significant denominator support for the Main Fund's BPI calculation. With Northmoor as the largest identified single commitment, the denominator is substantially increased, creating ample headroom for BPI participation by other investors. This is one of the structural advantages of having a large governmental plan investor as an anchor limited partner.
Additional considerations. Although not subject to ERISA, the Northmoor State Pension System is subject to its own state pension code and fiduciary standards, which may impose investment guidelines, reporting requirements, and other obligations on Northmoor's investment in the Fund. These state-law requirements do not affect the federal plan asset analysis but should be addressed in the course of side letter negotiations. We understand that a separate side letter for Northmoor is being negotiated and will address these matters independently.
B. The Kingsbridge Endowment Fund
Classification. The Kingsbridge Endowment Fund is a 501(c)(3) tax-exempt university endowment affiliated with Kingsbridge University. It invests the university's institutional endowment assets for the benefit of the university's educational mission. The endowment is not itself an "employee benefit plan" as defined in ERISA § 3(3), which defines an "employee benefit plan" as a plan established or maintained by an employer or employee organization (or both) for the purpose of providing benefits to employees and their beneficiaries. A university endowment is not established for the purpose of providing employee benefits — it is established for the purpose of supporting the university's educational, research, and charitable purposes.
IRC § 4975 analysis. A university endowment is not a "plan" described in IRC § 4975(e)(1). The plans described in that provision include employee benefit plans subject to ERISA Title I (other than governmental and church plans), IRAs described in IRC § 408(a), individual retirement annuities described in IRC § 408(b), Keogh plans, and certain other arrangements. A university endowment does not fall within any of these categories.
Commingling concern. The one area requiring careful inquiry is whether Kingsbridge University maintains employee benefit plans (such as a defined benefit pension plan, a 403(b) plan, or a 457(b) plan for university employees) and whether the assets of such plans are commingled with the endowment's general investment pool. Some universities commingle retirement plan assets with endowment assets for investment efficiency, investing both pools through the same investment vehicles and allocating returns proportionally. If Kingsbridge's endowment assets include commingled plan assets, a portion of the endowment's investment in the Fund could be attributable to plan assets, potentially triggering the look-through rule.
The standard analysis, however, is as follows: a university endowment that commingles retirement plan assets with endowment assets is not itself transformed into a plan asset entity for purposes of the Plan Assets Regulation. The endowment is a separate entity, and the 25% BPI test applies at the endowment level. If less than 25% of the endowment's total assets are attributable to employee benefit plan assets (which is typically the case for large university endowments, where the vast majority of assets are endowment gifts and investment returns rather than retirement plan contributions), the endowment is not a plan asset entity and is not a BPI.
Nonetheless, we recommend that the subscription documents require Kingsbridge to make a clear representation as to whether its assets include plan assets of any employee benefit plan subject to ERISA or IRC § 4975, and if so, the percentage of such plan assets relative to the endowment's total assets. If Kingsbridge represents that it is not investing plan assets, the inquiry is resolved and Kingsbridge is not a BPI.
blocker structure. If Kingsbridge invests through HGF V blocker Corp. (as currently anticipated), the blocker interposes an additional structural layer. Even if there were any residual ambiguity regarding Kingsbridge's BPI status, the blocker (as a C corporation) would be subject to its own independent BPI analysis. If Kingsbridge is the sole investor in the blocker and is not a BPI, the blocker's BPI percentage is 0%, and the blocker's investment in the Fund does not implicate the Fund's BPI threshold.
Recommendation. We recommend the following steps with respect to Kingsbridge:
(a) Require Kingsbridge's subscription documents (whether for the blocker, the Parallel Fund, or both) to include a representation that the endowment is not a BPI and that its subscription does not involve plan assets of any employee benefit plan subject to ERISA or IRC § 4975.
(b) Coordinate with Pelham Chambers LLP (Andrew K. Leverett), counsel to Kingsbridge, to confirm the factual basis for this representation and to obtain any supporting documentation regarding the composition of Kingsbridge's endowment assets.
(c) Structure Kingsbridge's investment through the blocker to provide an additional layer of plan asset insulation.
C. Stonewall Partners Fund of Funds III LP
Classification. Stonewall Partners Fund of Funds III LP is a Delaware limited partnership organized as a fund of funds. As a fund of funds, Stonewall invests capital raised from its own limited partners into underlying private equity funds, including (if admitted) Harrowgate Private Equity Fund V LP. The BPI analysis for Stonewall is more complex than for the other identified investors because Stonewall's own underlying investors may include BPIs, triggering the look-through provisions of the Plan Assets Regulation.
Look-through analysis. Under 29 C.F.R. § 2510.3-101(f)(2)(iii), if Stonewall's own underlying assets include plan assets — that is, if BPIs hold 25% or more of any class of equity interests in Stonewall and Stonewall does not otherwise qualify for an exemption (such as VCOC status) — then Stonewall is itself treated as a BPI for purposes of Fund V's 25% test.
Two scenarios must be considered:
(a) Stonewall maintains its own sub-25% BPI threshold. If Stonewall Partners Fund of Funds III LP has structured its own fund to ensure that BPIs hold less than 25% of its equity interests, then Stonewall's assets are NOT plan assets, and Stonewall is NOT a BPI for purposes of Fund V's 25% test. In this scenario, Stonewall's $75,000,000 commitment to the Main Fund is included only in the denominator and not in the numerator. This is the most favorable outcome and eliminates any BPI concern associated with Stonewall's participation.
(b) Stonewall's assets ARE plan assets. If BPIs hold 25% or more of Stonewall's equity interests and Stonewall does not qualify as a VCOC or REOC, then Stonewall's assets are treated as plan assets, and Stonewall is a BPI. In this scenario, the treatment of Stonewall's $75,000,000 commitment in Fund V's BPI calculation depends on the methodology applied:
• Full inclusion approach: The entire $75,000,000 commitment is counted in the BPI numerator. This is the most conservative approach and is the approach most clearly supported by the regulatory text.
• Proportional approach: Only the portion of Stonewall's commitment attributable to plan assets is counted in the BPI numerator. For example, if Stonewall represents that 30% of its assets constitute plan assets, then $75,000,000 × 30% = $22,500,000 would be counted in the numerator. This approach has some support in DOL guidance and is used by many practitioners, but it is less clearly supported by the regulatory text and carries some interpretive risk.
Subscription agreement requirements. The subscription agreement for Stonewall must include the following representations and covenants:
(i) A representation as to whether Stonewall's assets constitute "plan assets" under the Plan Assets Regulation (i.e., whether BPIs hold 25% or more of Stonewall's equity and Stonewall does not qualify for an exemption).
(ii) If Stonewall's assets are plan assets, a representation as to the percentage of Stonewall's total assets that are attributable to plan assets.
(iii) An ongoing obligation to notify the GP promptly of any material change in Stonewall's plan asset status (for example, if Stonewall's BPI participation crosses the 25% threshold due to a new subscription or a withdrawal by a non-BPI investor).
(iv) An agreement to provide updated plan asset information upon the GP's reasonable request.
Recommendation. We recommend that HCP contact Bernard C. Molinaro at Stonewall Partners to request a preliminary representation and supporting documentation regarding the percentage of plan assets in Stonewall Fund of Funds III's capital base. This diligence should be completed prior to the First Close. If Stonewall is a BPI (under either the full inclusion or proportional approach), the BPI percentage for the Main Fund remains well below 25% at the anticipated First Close commitment levels, so Stonewall's participation does not jeopardize the Fund's plan asset avoidance strategy.
D. Edgecombe Insurance Group Ltd.
Classification. Edgecombe Insurance Group Ltd. is a Bermuda-domiciled insurance holding company. Insurance companies invest their general account assets in a wide range of investment vehicles, including private equity funds.
Insurance company general account assets. The treatment of insurance company general account assets under ERISA and the Plan Assets Regulation is governed by a special framework. Under ERISA § 401(b)(2) (which was added by the Small Business Job Protection Act of 1996 and further clarified by DOL regulations), the assets of an insurance company's general account are not treated as "plan assets" for purposes of the prohibited transaction rules of ERISA, provided that certain conditions are met. However, this provision addresses the treatment of the general account itself — not the treatment of the general account's investment in a pooled investment vehicle such as a private equity fund.
For purposes of the Plan Assets Regulation's BPI test, the relevant question is whether Edgecombe is a BPI — that is, whether it is (or is investing on behalf of) an employee benefit plan subject to ERISA Title I, Part 4, or a plan described in IRC § 4975(e)(1). An insurance company investing from its general account is not itself an employee benefit plan. Its general account assets may include reserves backing obligations to employee benefit plan customers (through guaranteed investment contracts, annuity contracts, and similar products), but the general account is not a separate account holding assets of a specific plan. The standard analysis is that an insurance company investing its general account assets in a private equity fund is not a BPI unless it is investing from a separate account that holds the assets of a specific identified employee benefit plan.
Separate account concern. If Edgecombe were investing from a "separate account" (a segregated account holding assets that are specifically attributable to a particular employee benefit plan customer), the separate account assets would be plan assets, and Edgecombe would be a BPI to the extent of the separate account investment. The subscription agreement should require Edgecombe to represent that it is investing from its general account (or other non-plan asset account) and not from a separate account holding assets of a U.S. employee benefit plan.
Non-U.S. domicile. As a Bermuda-domiciled entity, Edgecombe is not itself a U.S. employee benefit plan and is not a plan described in IRC § 4975(e)(1). The only basis on which Edgecombe could be a BPI is if it is investing plan assets of a U.S. employee benefit plan through the look-through rule. The subscription agreement representation should address this specifically.
Recommendation. Require Edgecombe to represent in its subscription agreement that it is not investing plan assets of any U.S. employee benefit plan and that its investment is from its general account or other proprietary assets. With this representation, Edgecombe is not a BPI, and its $150,000,000 commitment counts only in the denominator.
E. Velthorn Family Office LLC
Classification. Velthorn Family Office LLC is a Delaware limited liability company operating as a single-family office. Family offices invest the proprietary wealth of a single family and are not employee benefit plans. A family office investing its own wealth is not a BPI unless it is investing on behalf of an employee benefit plan (for example, if the family has established a defined benefit pension plan for employees of a family-controlled business and the plan's assets are invested through the family office).
Analysis. The standard subscription agreement BPI representations should be sufficient to confirm that Velthorn is investing proprietary family wealth and not plan assets of any employee benefit plan. If Velthorn represents that it is not a BPI and is not investing plan assets, its $50,000,000 commitment counts only in the denominator.
Recommendation. Include standard BPI representations in Velthorn's subscription agreement. No additional diligence is anticipated.
F. Tidewater Sovereign Investment Authority
Classification. The Tidewater Sovereign Investment Authority is a foreign sovereign wealth fund. Foreign sovereign wealth funds are not U.S. employee benefit plans, are not plans described in IRC § 4975(e)(1), and are not BPIs under any category of the BPI definition. As a governmental entity of a foreign sovereign, Tidewater is excluded from ERISA and IRC § 4975 by the same logic that excludes U.S. governmental plans — and indeed more clearly so, as ERISA and the Code apply only to U.S. employee benefit plans and plans maintained for U.S. employees.
Offshore Feeder analysis. Tidewater is investing through the Offshore Feeder (Harrowgate Fund V Offshore SLP), not directly in the Main Fund. Its investment through the Offshore Feeder does not implicate the Main Fund's BPI calculation, because the Offshore Feeder is a separate legal entity with its own independent BPI analysis. Tidewater's $175,000,000 commitment counts in the Offshore Feeder's denominator and not in its numerator.
Recommendation. Standard subscription agreement representations should be included in the Offshore Feeder's subscription documents to confirm non-BPI status. No additional diligence is anticipated for Tidewater.
VI. MONITORING FRAMEWORK
Maintaining compliance with the 25% BPI threshold is not a one-time exercise performed at the initial closing. It requires ongoing monitoring throughout the life of the Fund, particularly during the fundraising period (when new investors are being admitted at successive closings) and whenever transfers of limited partnership interests occur. This Section sets forth our recommended monitoring framework.
A. Initial Assessment at Each Closing
At each closing of the Fund — beginning with the First Close (targeted for August 15, 2025) and continuing through subsequent closings (rolling through the anticipated Final Close on or about February 15, 2027) — the BPI percentage must be calculated for each Fund Vehicle separately. This includes the Main Fund, the Parallel Fund, the Offshore Feeder, and the blocker.
The inputs for this calculation are as follows:
(a) BPI representations from subscription agreements and investor questionnaires. Each prospective limited partner will be required to complete a subscription agreement and investor suitability questionnaire containing specific BPI-related representations, as described in Section VII below. These representations will form the factual basis for the BPI calculation.
(b) Look-through information from fund-of-funds investors. For investors that are pooled investment vehicles (such as Stonewall Partners Fund of Funds III LP), the subscription agreement will require a representation as to whether the investor's assets constitute plan assets and, if so, the percentage of plan assets in the investor's capital base. This information is necessary to apply the look-through rule correctly.
(c) GP commitment information. The GP commitment of $50,000,000 by Harrowgate Fund V GP LLC will be included in the denominator in accordance with our recommended conservative approach.
The BPI calculation at each closing is to be performed by fund counsel (Calderwood & Harkness LLP) in coordination with the fund administrator (Pinnacle Fund Services LLC, key contact David L. Prentiss, Senior Vice President, F

MEMORANDUM

MATTER NO.: 1003-00002

I. EXECUTIVE SUMMARY

II. BACKGROUND

III. LEGAL FRAMEWORK

IV. APPLICATION TO FUND V VEHICLES

V. TREATMENT OF SPECIFIC INVESTORS

VI. MONITORING FRAMEWORK

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