PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT COMMUNICATION
CALDERWOOD & HARKNESS LLP MEMORANDUM
TO: Graham Sutherland, Responsible Partner, Funds & Asset Management
FROM: Stephen Adler, Lead Associate, Funds & Asset Management
DATE: April 18, 2025
RE: Placement Agent Disclosure & Compliance Obligations — Osprey Capital Markets LLC Engagement for Harrowgate Private Equity Fund V LP
MATTER NO.: 1003-00002
CC: Pamela Cross; Theresa Kim
I. Executive Summary
The purpose of this memorandum is to analyze comprehensively the legal disclosure and compliance obligations arising from the engagement of Osprey Capital Markets LLC ("Osprey") as the exclusive placement agent for Harrowgate Private Equity Fund V LP ("HPE Fund V" or the "Fund"). This memorandum has been prepared at the request of our client, Harrowgate Capital Partners LLC ("HCP" or the "Sponsor"), and is intended to guide the Sponsor and this firm in satisfying all applicable regulatory and contractual disclosure requirements in connection with the Fund's capital raising process.
Osprey is a Delaware limited liability company and an SEC-registered broker-dealer (to be confirmed: CRD number) and member of the Financial Industry Regulatory Authority ("FINRA"), with its principal offices located at 599 Lexington Avenue, 35th Floor, New York, NY 10022. The key relationship contact for the engagement is Sandra J. Whitmore, Managing Director, Private Fund Advisory. Osprey has been engaged for non-U.S. institutional distribution and select U.S. institutional distribution pursuant to an exclusive placement agent agreement that became effective on January 15, 2025.
Our client, HCP, is a Delaware limited liability company registered with the U.S. Securities and Exchange Commission ("SEC") as an investment adviser (SEC File No. 801-79223; CRD No. 298417). HCP is promoting HPE Fund V — a $2.0 billion hard-cap North American mid-market and upper-mid-market buyout fund — and has engaged this firm as Fund counsel to prepare the Confidential Private Placement Memorandum ("PPM"), limited partnership agreement, subscription documents, and all ancillary offering materials.
This memorandum addresses the following areas of legal analysis:
1. Federal Securities Law Disclosure — Obligations arising under Regulation D, the Securities Act of 1933 (the "Securities Act"), the Securities Exchange Act of 1934 (the "Exchange Act"), and the Investment Advisers Act of 1940 (the "Advisers Act") to disclose the placement agent engagement and compensation in the PPM;
2. FINRA Requirements — Compliance obligations applicable to Osprey as a FINRA-member broker-dealer, including filing requirements under FINRA Rule 5123, compensation limitations under FINRA Rule 2310, and prohibitions on payments to unregistered persons under FINRA Rule 2040;
3. Pay-to-Play Compliance — Analysis under SEC Rule 206(4)-5 under the Advisers Act and FINRA Rule 2030 as they apply to the solicitation of governmental plan investors, with particular focus on the Northmoor State Pension System;
4. State and Municipal Pension Plan Placement Agent Disclosure Laws — Identification and analysis of state-specific placement agent disclosure statutes and regulations applicable to governmental plan investors in the Fund, with heightened focus on the Northmoor State Pension System as the sole currently identified governmental plan investor;
5. Recommended PPM Language — Proposed disclosure language for inclusion in the PPM's placement agent, conflicts of interest, and fees and expenses sections; and
6. Form D Filing Considerations — Requirements for disclosure of the placement agent engagement on Form D and state blue sky notice filings.
Summary Recommendation: Comprehensive, prominent disclosure of Osprey's engagement, compensation structure, regulatory status, and any material relationships must be included in the PPM. Specific and time-sensitive compliance steps must be taken with respect to governmental plan investors, particularly the Northmoor State Pension System. The action items set forth in Section IX of this memorandum should be prioritized to ensure that all compliance measures are in place before the initial distribution of the PPM, which is currently targeted for June 2, 2025.
II. Background
A. The Fund
Harrowgate Private Equity Fund V LP is a Delaware limited partnership to be formed. The Fund's general partner will be Harrowgate Fund V GP LLC, a Delaware limited liability company whose sole member is HCP. The Fund will be managed by HCP in its capacity as the Sponsor and SEC-registered investment adviser.
The Fund's target fund size is $2.0 billion, with a hard cap of $2.0 billion and a minimum First Close target of $750,000,000. The investment strategy focuses on North American mid-market and upper-mid-market buyout transactions in the industrials, business services, healthcare services, and technology-enabled services sectors, with anticipated equity checks ranging from $75 million to $250 million per transaction. The Fund will seek to acquire controlling or significant minority positions in target companies, with the objective of creating value through operational improvements, strategic repositioning, and selective add-on acquisitions.
The offering of limited partnership interests in the Fund will be conducted in reliance on Section 4(a)(2) of the Securities Act and Regulation D, Rule 506(b), promulgated thereunder. No general solicitation or general advertising will be utilized in connection with the offering. All investors will be required to qualify as "accredited investors" within the meaning of Regulation D, Rule 501(a), and as "qualified purchasers" within the meaning of Section 2(a)(51) of the Investment Company Act of 1940 (the "1940 Act"), such that the Fund may rely on the exclusion from the definition of "investment company" provided by Section 3(c)(7) of the 1940 Act.
HCP serves as the Sponsor and SEC-registered investment adviser to the Fund. Calderwood & Harkness LLP serves as Fund counsel and is responsible for the preparation of the PPM, the amended and restated agreement of limited partnership (the "LPA"), the subscription agreement, and all related offering documentation.
B. The Placement Agent Engagement
Osprey Capital Markets LLC was engaged as the exclusive placement agent for HPE Fund V pursuant to a placement agent agreement that became effective on January 15, 2025 (the "Placement Agent Agreement"). The scope of Osprey's engagement encompasses non-U.S. institutional distribution and select U.S. institutional distribution of limited partnership interests in the Fund.
The compensation structure under the Placement Agent Agreement provides for a placement fee equal to 1.25% of committed capital placed by Osprey, payable solely with respect to capital commitments from investors that are introduced to and sourced by Osprey. This is a critical structural feature: the placement fee is payable by the Sponsor — Harrowgate Capital Partners LLC — and is not a charge to the Fund, its assets, or its limited partners. This distinction is of central importance for PPM disclosure purposes, as discussed in detail in Sections III and VII below.
Osprey does not receive any trailing fees, ongoing advisory fees, or management fee participation. Osprey has no equity interest in HCP, the General Partner, or the Fund, and does not receive any carried interest or profit participation. The Placement Agent Agreement contains standard representations by Osprey regarding its regulatory status (including its SEC broker-dealer registration and FINRA membership), its compliance with applicable laws and regulations, and its agreement to abide by the terms of the PPM and related offering materials. The agreement also contains customary indemnification provisions, mutual confidentiality undertakings, and termination rights.
C. Prospective Investor Base (Relevant to Placement Agent Analysis)
An analysis of the current investor pipeline is necessary to identify the specific compliance obligations triggered by the nature of the prospective limited partners. Based on information provided by HCP and Osprey, the following investors are currently in the identified pipeline for the First Close:
The total identified pipeline is $750,000,000, which equals the minimum First Close target. The composition of this investor base is significant for purposes of the placement agent compliance analysis for several reasons:
First, the Northmoor State Pension System is the only governmental plan in the current pipeline. As a state governmental pension plan, Northmoor's anticipated $200,000,000 commitment triggers the most stringent placement agent disclosure obligations, including SEC pay-to-play requirements under Rule 206(4)-5, FINRA Rule 2030, and Northmoor state-specific placement agent disclosure statutes and regulations. These requirements are analyzed in detail in Sections V and VI below.
Second, the Tidewater Sovereign Investment Authority, while a governmental entity in the broadest sense, is a foreign sovereign wealth fund and will invest through the Offshore Feeder vehicle. Foreign sovereign wealth funds are generally not subject to U.S. state pay-to-play or placement agent disclosure statutes, and the SEC pay-to-play rules under Rule 206(4)-5 apply only to "government entities" as defined therein, which is limited to U.S. state and local governmental entities. Accordingly, the Tidewater commitment does not independently trigger the heightened placement agent compliance obligations applicable to U.S. governmental plan investors, although general federal anti-fraud disclosure requirements still apply.
Third, the remaining investors — The Kingsbridge Endowment Fund, Edgecombe Insurance Group Ltd., Velthorn Family Office LLC, and Stonewall Partners Fund of Funds III LP — are non-governmental institutional investors. Standard PPM disclosure of the Osprey engagement is required for these investors under general anti-fraud principles, but no state-specific placement agent disclosure laws are triggered by their participation.
III. Federal Securities Law — PPM Disclosure Obligations
A. Regulation D Framework
The Fund is offering limited partnership interests in reliance on Rule 506(b) of Regulation D under the Securities Act. Rule 506(b) permits an issuer to raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 sophisticated but non-accredited investors, provided that no general solicitation or general advertising is employed in connection with the offering. A broker-dealer placement agent may participate in a Rule 506(b) offering, and its engagement is both permissible and common in institutional private fund offerings.
However, the engagement of a placement agent and the terms of its compensation are material facts that must be disclosed to prospective investors. This disclosure obligation arises from multiple overlapping legal frameworks:
First, the anti-fraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder prohibit any person, in connection with the purchase or sale of any security, from making any untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. The identity, role, and compensation of a placement agent are facts that a reasonable investor would consider important in making an investment decision, and their omission from the PPM would constitute a material omission under Rule 10b-5.
Second, Sections 17(a)(2) and 17(a)(3) of the Securities Act prohibit any person, in the offer or sale of any security, from obtaining money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or from engaging in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. These provisions apply to the Sponsor, the General Partner, and the placement agent alike.
Third, SEC guidance and enforcement actions have consistently held that the failure to disclose placement agent fees — even when those fees are paid by the sponsor rather than the fund — constitutes a material omission that violates the anti-fraud provisions. The SEC has brought enforcement actions in cases where investment advisers failed to disclose the existence or terms of placement agent engagements, and the resulting settlements have included significant financial penalties and undertakings. Investors are entitled to know that a third-party intermediary is being compensated for introducing them to the Fund, as this information bears on the investor's assessment of the intermediary's objectivity, the adviser's conflicts of interest, and the overall economics of the investment.
B. SEC Guidance on Adviser-Paid Placement Agent Fees
Although the 1.25% placement fee is structured as a Sponsor-paid expense — payable by Harrowgate Capital Partners LLC out of its own resources and not charged to the Fund or its limited partners — this fact does not eliminate the disclosure obligation. To the contrary, the SEC has made clear that the source of payment for placement agent compensation does not diminish its materiality to investors.
The rationale for this position is grounded in conflict-of-interest analysis. Even where the Fund itself does not bear the cost of the placement fee, the Sponsor's obligation to pay such fees creates potential conflicts of interest that are material to investors. For example, the Sponsor's economic incentive to raise capital through Osprey — and thereby incur the 1.25% fee — may influence the terms on which the Sponsor is willing to accept investors sourced by Osprey versus investors sourced through the Sponsor's own efforts. The fee arrangement may also create an incentive for the Sponsor to accept commitments from investors sourced by Osprey without the same level of scrutiny that would be applied to investors introduced through other channels, or to prioritize Osprey-sourced investors in the allocation of capacity in an oversubscribed fund.
The SEC Division of Examinations (formerly the Office of Compliance Inspections and Examinations) has identified undisclosed or inadequately disclosed placement agent arrangements as a priority examination area for registered investment advisers. In its examination priorities for 2024 and 2025, the Division has continued to emphasize the importance of adequate disclosure of all fees and compensation arrangements, including third-party placement agent fees, regardless of whether such fees are borne by the fund or the adviser. The Division has noted that insufficient disclosure in this area remains a common deficiency finding in examinations of private fund advisers.
HCP, as a registered investment adviser, is subject to the fiduciary duty of disclosure under the Advisers Act. Under Section 206 of the Advisers Act, an investment adviser has an affirmative duty to disclose all material conflicts of interest to its clients, including conflicts arising from compensation arrangements with third parties. The SEC has interpreted this duty broadly to encompass the disclosure of all facts that might incline an investment adviser — consciously or unconsciously — to render advice that is not disinterested. The engagement of Osprey and the payment of placement fees fall squarely within the scope of this fiduciary disclosure obligation.
Recommendation: The PPM should include the following disclosures regarding the Osprey engagement:
(i) Osprey's identity as Osprey Capital Markets LLC;
(ii) That Osprey is an SEC-registered broker-dealer and a member of FINRA;
(iii) The exclusive nature of the placement agent engagement;
(iv) The fee structure, specifically that Osprey will receive a placement fee equal to 1.25% of committed capital for investors placed through Osprey;
(v) That the placement fee is payable by the Sponsor (Harrowgate Capital Partners LLC) and is not charged to the Fund, its assets, or its limited partners;
(vi) Any material relationships between Osprey and HCP or its principals, including but not limited to any prior engagements, overlapping directorships, ownership interests, or familial relationships; and
(vii) That Osprey is not acting as an adviser to investors and that investors should conduct their own independent evaluation of the Fund and the terms of the offering.
C. Required Disclosures Regarding Osprey's Regulatory Status
In addition to the general placement agent disclosure described above, specific disclosures regarding Osprey's regulatory status should be included in the PPM. These disclosures serve to inform prospective investors of Osprey's regulatory oversight framework and enable investors to conduct their own due diligence on the placement agent.
The PPM should disclose the following regulatory information:
(a) Osprey's SEC broker-dealer registration status and registration number;
(b) Osprey's FINRA membership and CRD number (this number should be confirmed with Osprey and included in the final PPM — it is currently being requested);
(c) Any disciplinary history or material regulatory events involving Osprey or its associated persons, including any regulatory proceedings, enforcement actions, customer complaints, or other reportable events. Osprey is required to provide representations regarding its disciplinary history in the Placement Agent Agreement, and HCP should independently verify this information by conducting a review of Osprey's BrokerCheck report, which is publicly available through FINRA's BrokerCheck system;
(d) Identification of Sandra J. Whitmore, Managing Director, Private Fund Advisory, as the primary contact for the Osprey engagement, and identification of any other Osprey personnel who are involved in the placement of Fund interests. This disclosure is particularly relevant for governmental plan investors, which may require identification of all individuals involved in the solicitation process.
We note that the Placement Agent Agreement should contain robust representations from Osprey regarding its regulatory status, its compliance with all applicable laws and regulations, its disciplinary history (or lack thereof), and its agreement to notify HCP promptly of any material change in its regulatory status or any new disciplinary proceeding. We will review the executed Placement Agent Agreement to confirm that these representations are adequate, as further discussed in the action items in Section IX.
IV. FINRA Compliance Considerations
A. FINRA Rules Applicable to Private Placements
As a FINRA-member broker-dealer, Osprey is subject to a number of FINRA rules that bear directly on its role as placement agent for HPE Fund V. The following rules are of particular relevance:
FINRA Rule 5123 (Private Placements of Securities). FINRA Rule 5123 requires a FINRA-member firm that sells an issuer's securities in a private placement (or that participates in such a placement) to file the PPM, term sheet, or other offering document with FINRA within 15 calendar days of the date of the first sale in the offering. The term "first sale" is generally understood to mean the first closing of the offering — here, the anticipated First Close date of August 15, 2025.
This filing obligation is Osprey's obligation, not HCP's or the Fund's. However, it is prudent for Calderwood & Harkness LLP, as Fund counsel, to confirm with Osprey that the FINRA Rule 5123 filing will be made in a timely manner. Failure by Osprey to comply with this requirement could expose Osprey to FINRA disciplinary action and could raise questions about the adequacy of Osprey's regulatory compliance more broadly. We should request written confirmation from Osprey that it will comply with the Rule 5123 filing requirement and that it has internal procedures in place to ensure timely filing.
FINRA Rule 2310 (Direct Participation Programs). FINRA Rule 2310 applies to the offer and sale of securities of "direct participation programs" ("DPPs"), which are defined to include any program that provides for flow-through tax consequences regardless of the structure of the legal entity. Limited partnership interests in private equity funds are generally characterized as DPP securities for purposes of FINRA Rule 2310. The rule requires that the compensation paid to the FINRA-member firm in connection with the distribution of DPP securities be "fair and reasonable," and it imposes due diligence obligations on the member firm.
While the primary obligation to comply with Rule 2310 rests with Osprey, the Fund's offering documents should be prepared with awareness of the rule's requirements, and the placement fee structure should be consistent with FINRA's fairness standards. We analyze the compensation limits in greater detail in Section IV.B below.
FINRA Rule 2040 (Payments to Unregistered Persons). FINRA Rule 2040 prohibits a FINRA-member firm from, directly or indirectly, paying any compensation to persons that are not registered as broker-dealers under the Exchange Act or are not appropriately licensed, in connection with the solicitation or sale of securities. This rule is relevant because it prohibits Osprey from sharing its placement fee with any unregistered finder, solicitor, or sub-agent. If Osprey has engaged or intends to engage any sub-placement agent or third-party solicitor, such person must be a registered broker-dealer and FINRA member (or fall within one of the narrow exceptions to the registration requirement).
We should confirm with Osprey that no sub-placement arrangements are currently in place and that Osprey will not engage any sub-agents without prior notice to HCP and appropriate regulatory compliance verification. This confirmation should be documented in writing.
Recommendation: The Placement Agent Agreement should contain — and we should confirm that it does contain — a representation from Osprey that it will comply with all applicable FINRA rules, including Rules 5123, 2310, and 2040, in connection with its engagement as placement agent for HPE Fund V. The agreement should also require Osprey to notify HCP promptly of any FINRA examination, inquiry, or disciplinary action related to the Fund offering. We should further confirm that no sub-agents have been or will be engaged without prior written notice to HCP and a determination by HCP and Calderwood & Harkness LLP that such engagement complies with applicable regulatory requirements.
B. Compensation Limits
FINRA has historically applied a total compensation limit of 10% of offering proceeds for DPP offerings. This limit is inclusive of all underwriting compensation, selling commissions, organizational and offering expenses borne by the issuer, and any other forms of compensation paid to FINRA-member firms in connection with the distribution of DPP securities. The 10% limit is assessed on the aggregate offering proceeds, not on a per-investor basis.
In the case of HPE Fund V, the 1.25% placement fee payable to Osprey is well within the 10% limit, even when considered in combination with the Fund's organizational expenses. The Fund's organizational expenses are capped at $3,500,000 (to be borne by the Fund up to the cap, with any excess borne by the Sponsor). At the $2.0 billion hard cap, the organizational expenses cap represents 0.175% of total committed capital, and the combined placement fee and organizational expenses would represent approximately 1.425% of committed capital — far below the 10% threshold.
However, there is a nuance that merits consideration. Because the 1.25% placement fee is paid by the Sponsor and not by the Fund, there is a reasonable argument that it should not be included in the FINRA compensation analysis for purposes of determining the Fund's total offering expenses. The FINRA rules focus on compensation paid by or on behalf of the issuer (here, the Fund and its General Partner), and Sponsor-paid placement fees may fall outside the scope of the compensation that is subject to the 10% limit. Nevertheless, conservative practice counsels in favor of disclosing the placement fee in the PPM and in any FINRA-related filings, and of analyzing the total compensation package on an inclusive basis to avoid any potential regulatory challenge.
The $3,500,000 organizational expenses cap should also be analyzed in context. If Osprey's placement fee were deemed to be part of the offering compensation package for FINRA purposes — notwithstanding that it is Sponsor-paid — then the aggregate compensation would need to include the placement fee, the organizational expenses, and any other offering-related costs. Even under this more conservative analysis, the total compensation would remain well within FINRA's 10% limit at all fund sizes from the minimum First Close target of $750,000,000 to the $2.0 billion hard cap.
V. Pay-to-Play Compliance — SEC Rule 206(4)-5
A. Overview of the Rule
SEC Rule 206(4)-5 under the Advisers Act (the "Pay-to-Play Rule") was adopted in 2010 to address the practice of investment advisers making political contributions to government officials who are in a position to influence the selection of investment advisers to manage public pension fund assets and other government entity investments. The rule operates as a prophylactic prohibition designed to prevent "pay-to-play" arrangements that could corrupt the investment decision-making process of governmental entities.
The Pay-to-Play Rule has three principal operative provisions:
(1) Two-Year Time Out. Under Rule 206(4)-5(a)(1), it is unlawful for an investment adviser registered (or required to be registered) with the SEC to provide investment advisory services for compensation to a government entity within two years after the adviser or any of its "covered associates" makes a political contribution to an "official" of the government entity. "Covered associates" include the adviser's general partners, managing members, executive officers, and any employee who solicits a government entity for the adviser and any person who supervises, directly or indirectly, such employee. "Official" means any person (including any election committee for the person) who was, at the time of the contribution, an incumbent, candidate, or successful candidate for elective office of the government entity if the office is directly or indirectly responsible for, or can influence the outcome of, the hiring of an investment adviser by the government entity.
(2) Third-Party Solicitation Restriction. Under Rule 206(4)-5(a)(2), it is unlawful for an investment adviser registered (or required to be registered) with the SEC to provide or agree to provide, directly or indirectly, payment to any person to solicit a government entity for investment advisory services on behalf of the adviser unless the person is (i) a "regulated person" or (ii) an executive officer, general partner, managing member, or employee of the adviser. A "regulated person" is defined to include (A) an SEC-registered investment adviser, subject to the limitations and conditions of Rule 206(4)-5, or (B) a registered broker-dealer, subject to a pay-to-play rule adopted by a registered national securities association (i.e., FINRA).
(3) Prohibition on Soliciting or Coordinating Contributions. Under Rule 206(4)-5(a)(2)(ii), it is unlawful for an investment adviser to coordinate or solicit any person or political action committee to make any contribution to an official of a government entity to which the adviser is providing or seeking to provide investment advisory services.
These prohibitions are strict liability in nature — there is no intent requirement, and even de minimis contributions can trigger the two-year time-out, with only a narrow exception for contributions of $350 or less made by individuals who are entitled to vote for the official to whom the contribution is made (and $150 or less by those not entitled to vote).
B. Application to the Osprey Engagement
The Northmoor State Pension System is a state governmental pension plan. Its anticipated commitment of $200,000,000 makes it the anchor limited partner and the single most significant investor in the current pipeline. The investment advisory services that HCP will provide to the Fund on behalf of the Northmoor State Pension System (as a limited partner) bring the Northmoor commitment squarely within the scope of the Pay-to-Play Rule.
If Osprey is soliciting the Northmoor State Pension System on behalf of HCP — which appears to be the case given Osprey's role as exclusive placement agent with responsibility for institutional distribution — then Rule 206(4)-5(a)(2) requires that Osprey qualify as a "regulated person" within the meaning of the rule. Specifically, Osprey must be either (i) an SEC-registered investment adviser subject to the Pay-to-Play Rule, or (ii) a registered broker-dealer subject to a pay-to-play rule adopted by a registered national securities association.
Osprey's status as a FINRA-member broker-dealer is directly relevant here. FINRA Rule 2030 (Engagements of Third Parties to Solicit Government Entities), adopted in 2016, imposes pay-to-play restrictions on FINRA-member broker-dealers that are substantially similar to — and were specifically designed to be comparable to — SEC Rule 206(4)-5. FINRA Rule 2030 prohibits a FINRA-member broker-dealer from soliciting a government entity on behalf of an investment adviser unless, among other things, neither the broker-dealer nor any of its "covered associates" has made a disqualifying political contribution to an official of the government entity within the preceding two years.
Accordingly, Osprey's status as a FINRA-member broker-dealer subject to FINRA Rule 2030 satisfies the "regulated person" requirement under Rule 206(4)-5(a)(2). This means that HCP may lawfully compensate Osprey for soliciting governmental plan investors, including the Northmoor State Pension System, provided that Osprey is in compliance with FINRA Rule 2030.
However, the satisfaction of the "regulated person" requirement is a necessary but not sufficient condition. HCP must also confirm the following:
(i) That Osprey and its covered associates have not made any disqualifying political contributions to officials of the State of Northmoor, the Northmoor State Pension System, or any other governmental entity whose pension funds or investment programs are prospective investors in the Fund;
(ii) That Osprey has adopted and implemented written policies and procedures reasonably designed to prevent violations of FINRA Rule 2030, including political contribution pre-clearance, monitoring, and record-keeping procedures; and
(iii) That Osprey will promptly notify HCP of any political contribution made by Osprey or any of its covered associates that could affect HCP's ability to receive advisory compensation from a governmental entity investor.
Recommendation: The following steps should be taken to ensure pay-to-play compliance with respect to the Osprey engagement:
(a) Obtain a written representation and certification from Osprey, signed by an appropriate senior officer, confirming that Osprey is in compliance with FINRA Rule 2030 and that no disqualifying political contributions have been made by Osprey or any of its covered associates to officials of Northmoor or any other governmental entity that is a prospective investor in the Fund;
(b) Obtain a copy of Osprey's written pay-to-play compliance policies and procedures for review by Calderwood & Harkness LLP to assess their adequacy and alignment with the requirements of FINRA Rule 2030;
(c) Include appropriate disclosure in the PPM that Osprey, as a FINRA-member broker-dealer, is subject to the pay-to-play restrictions of FINRA Rule 2030, and that HCP is subject to SEC Rule 206(4)-5; and
(d) Require Osprey, under the Placement Agent Agreement or by separate undertaking, to provide HCP with advance written notice before soliciting any governmental plan investor and to certify compliance with FINRA Rule 2030 with respect to each such governmental entity.
C. HCP's Own Pay-to-Play Compliance
Independent of Osprey's compliance obligations, HCP itself is directly subject to SEC Rule 206(4)-5 as an SEC-registered investment adviser. HCP must confirm that none of its covered associates have made political contributions within the preceding two years to officials of the State of Northmoor, the Northmoor State Pension System, or any other governmental entity that could disqualify HCP from receiving advisory compensation from such entity.
Based on publicly available information and HCP's organizational documents, the following individuals are likely to constitute "covered associates" of HCP for purposes of Rule 206(4)-5:
• Marcus J. Harrowgate — Founder, Managing Partner
• Diana R. Castellano — Partner, Co-Head of Investments
• Jonathan P. Birch — Partner, Co-Head of Investments
• Rachel M. Overton — Partner, Head of Investor Relations
• Naveen S. Krishnamurthy — Principal, Investor Relations
• Catherine E. Loomis — General Counsel & Chief Compliance Officer
• Any other employee who solicits a government entity for advisory services on behalf of HCP, and any person who supervises, directly or indirectly, such employee
HCP should be asked to confirm that its covered associate list is current and complete, and that it has reviewed the political contributions of all covered associates for the applicable look-back period (two years preceding the date of the anticipated Northmoor State Pension System commitment).
Recommendation: HCP should maintain and regularly update its political contribution log and pre-clearance procedures for the duration of the fundraise and for at least two years following the final close. Calderwood & Harkness LLP should review HCP's existing compliance manual and pay-to-play policies and procedures — including the political contribution pre-clearance form, the contribution tracking spreadsheet, and the annual certification process — to assess their adequacy in light of the specific governmental plan investors in the pipeline. If deficiencies are identified, we should recommend remedial measures before the PPM distribution date.
VI. State and Municipal Pension Plan Placement Agent Disclosure Requirements
A. Overview
In addition to the federal securities law framework described above, many U.S. states have enacted statutes and regulations specifically addressing the use of placement agents in connection with investments by state and local pension plans. These laws were adopted in the wake of pay-to-play scandals involving public pension funds in several states and are designed to increase transparency in the process by which investment managers and their intermediaries solicit public pension fund investments.
The scope and requirements of these state-specific placement agent laws vary significantly by jurisdiction. Common features include:
(a) Requirements to disclose the identity of the placement agent, the compensation arrangement, and any relationships between the placement agent and the pension fund's fiduciaries, trustees, consultants, or elected officials;
(b) Requirements to file specific disclosure forms or certifications with the pension system, a state ethics commission, or another oversight body, either before or at the time of the pension fund's commitment;
(c) Prohibitions on the payment of finder's fees, referral fees, or gifts to pension fund officials or fiduciaries in connection with the solicitation;
(d) Requirements to disclose any campaign contributions or gifts made by the placement agent or the investment manager (or their principals) to state officials within a specified look-back period (commonly two to five years);
(e) Ongoing disclosure obligations following the pension fund's commitment, including periodic certifications and updates to previously filed disclosure forms; and
(f) In some jurisdictions, outright prohibitions on the use of placement agents in connection with state pension fund investments, or requirements that placement agents be registered with a state authority.
Failure to comply with these state-specific requirements can result in a range of consequences, including voiding the pension fund's investment commitment, disqualification of the investment manager from future pension fund mandates, financial penalties, and reputational harm.
B. Northmoor State Pension System — Specific Requirements
The Northmoor State Pension System is the sole governmental plan investor currently in the pipeline, with an anticipated commitment of $200,000,000. As a governmental pension plan of a U.S. state (the State of Northmoor), the Northmoor State Pension System's investments are subject to Northmoor state law and the pension system's own internal investment policies regarding placement agent disclosure.
Calderwood & Harkness LLP must undertake a thorough review of the following:
(i) Northmoor State Statutes and Regulations. We must identify and analyze all Northmoor state statutes and administrative regulations governing the disclosure of placement agent engagements in connection with state pension fund investments. This includes any statutes enacted by the Northmoor state legislature and any regulations promulgated by the Northmoor State Pension System, the State Treasurer's office, or any other state agency with oversight responsibility for pension fund investments.
(ii) Northmoor State Pension System Internal Policies. We must obtain and review the Northmoor State Pension System's internal policies regarding placement agent disclosure, which may impose requirements that are more stringent than those set forth in state statute. These policies are typically adopted by the pension system's board of trustees and may be available on the pension system's website or obtainable upon request. We should coordinate with Helen T. Barrows, Director of Private Markets at the Northmoor State Pension System, or with the pension system's outside counsel, Aldworth & McBride LLP (Margaret S. Quinlan), to obtain these policies.
(iii) Required Forms and Certifications. Many state pension systems require investment managers and placement agents to complete specific disclosure forms or certifications as a condition of the pension system's investment commitment. These forms typically require disclosure of the placement agent's identity, its regulatory status, the fee arrangement, the identities of all individuals involved in the solicitation, and any political contributions or gifts made to state officials. We must identify and obtain any such forms required by the Northmoor State Pension System.
Based on our experience with similar state pension systems, we anticipate that the Northmoor State Pension System's placement agent disclosure requirements may include one or more of the following:
(a) A written placement agent disclosure form identifying Osprey Capital Markets LLC, Sandra J. Whitmore (Managing Director, Private Fund Advisory), and all other Osprey personnel involved in the solicitation of the Northmoor State Pension System;
(b) Disclosure of the 1.25% placement fee, the payment source (the Sponsor, Harrowgate Capital Partners LLC), and the method of calculation;
(c) Certification that no finder's fees, referral fees, gifts, entertainment, or other items of value have been paid or provided to any official, employee, trustee, or fiduciary of the Northmoor State Pension System or to any consultant or adviser retained by the pension system in connection with the investment;
(d) Disclosure of any campaign contributions, political contributions, or gifts made by Osprey, its principals, or its covered associates (and by HCP, its principals, or its covered associates) to any elected official of the State of Northmoor or any other person in a position to influence the investment decisions of the Northmoor State Pension System, within a specified look-back period (commonly two to five years);
(e) Ongoing disclosure obligations following the pension system's commitment, including requirements to update the disclosure form in the event of any material change in the information previously provided, and periodic certifications of continued compliance.
Action Item: Stephen Adler and Theresa Kim will conduct research on Northmoor state placement agent disclosure laws and regulations and will coordinate with Aldworth & McBride LLP (Margaret S. Quinlan) to obtain the Northmoor State Pension System's specific placement agent disclosure forms, policies, and procedural requirements. The deadline for completion of this research is May 15, 2025, which is ahead of the target LP distribution date of June 2, 2025, to ensure that all Northmoor-specific compliance measures are in place before the PPM and related offering materials are distributed to the pension system.
C. Other Potential Governmental Plan Investors
The current investor pipeline does not include any governmental plan investors other than the Northmoor State Pension System. However, HPE Fund V permits subsequent closes through February 15, 2027 (18 months following the target First Close date of August 15, 2025), and it is possible — indeed, likely — that additional governmental plan investors will be identified during the fundraise period.
If additional governmental plan investors are identified, Calderwood & Harkness LLP will need to conduct a state-specific placement agent compliance analysis for each such investor. This analysis will include a review of the applicable state's placement agent disclosure statutes and regulations, the particular pension system's internal policies, and any required forms or certifications. The timing of this analysis is critical, as many state pension systems require placement agent disclosure to be completed and submitted before (or contemporaneously with) the pension system's commitment, and post-commitment disclosure is generally not a substitute for timely pre-commitment compliance.
Recommendation: To ensure that governmental plan compliance obligations are addressed in a timely and systematic manner, we recommend the following:
(a) Build a placement agent compliance checklist as an appendix to the PPM distribution procedures. This checklist should identify, for each prospective governmental plan investor, the applicable state-specific disclosure requirements, the required forms and certifications, the deadlines for submission, and the responsible persons for compliance.
(b) Require Osprey, under the Placement Agent Agreement or by separate undertaking, to provide advance written notice to HCP and Calderwood & Harkness LLP before initiating any solicitation of a governmental plan investor. This notice should be provided sufficiently in advance to allow for the completion of the state-specific compliance analysis before any substantive discussions with the pension system regarding a commitment.
(c) Maintain a centralized record of all placement agent disclosure forms, certifications, and related correspondence filed with governmental plan investors and state oversight bodies.
VII. Recommended PPM Disclosure Language
A. Placement Agent Section
We recommend that the PPM include a standalone section addressing the placement agent engagement. This section may be placed within the "Summary of Terms" or may appear as a separate section titled "Placement Agent" in the body of the PPM. In either case, the section should be clearly labeled and prominently positioned so that prospective investors can easily locate it.
The proposed placement agent section should contain the following disclosures:
1. Identity. Osprey Capital Markets LLC ("Osprey") has been engaged as the exclusive placement agent for the Fund.
2. Regulatory Status. Osprey is a limited liability company organized under the laws of the State of Delaware. Osprey is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member of the Financial Industry Regulatory Authority, Inc. Osprey's principal offices are located at 599 Lexington Avenue, 35th Floor, New York, NY 10022. Osprey's CRD number is [to be confirmed and inserted].
3. Scope of Engagement. Osprey has been engaged to assist the Sponsor with non-U.S. and select U.S. institutional distribution of limited partnership interests in the Fund. Osprey's engagement is exclusive.
4. Compensation. Osprey will receive a placement fee equal to 1.25% of committed capital for investors introduced by and placed through Osprey. This placement fee is payable solely by the Sponsor (Harrowgate Capital Partners LLC) and is not a charge to the Fund, the General Partner, or the limited partners. The placement fee will not be offset against or reduce the management fee or any other fee payable to the General Partner or the Sponsor.
5. No Additional Compensation. Osprey does not receive any carried interest, profit participation, equity interest, or ongoing trailing fees in connection with its engagement as placement agent for the Fund.
6. Effective Date. The placement agent agreement between the Sponsor and Osprey became effective on January 15, 2025.
7. Conflicts of Interest. Osprey and its affiliates may have other client relationships and may receive compensation from sources other than the Sponsor in connection with activities unrelated to the Fund. Osprey is not acting as an investment adviser to investors in the Fund and has not undertaken to provide investment advice to any limited partner. Prospective investors should conduct their own independent evaluation of the Fund, the terms of the offering, and the risks associated with an investment in limited partnership interests. No prospective investor should rely on Osprey as a source of investment advice or as an independent evaluator of the merits of an investment in the Fund.
8. Pay-to-Play. Osprey is subject to FINRA Rule 2030 regarding the solicitation of government entities on behalf of investment advisers. The Sponsor is subject to SEC Rule 206(4)-5 under the Investment Advisers Act of 1940 regarding political contributions and the provision of advisory services to government entities. The Sponsor and Osprey have each adopted policies and procedures designed to ensure compliance with these rules.
9. Cross-Reference. See also "Conflicts of Interest" and "Fees and Expenses" elsewhere in this Memorandum for additional information regarding the Sponsor's engagement of Osprey and the economic terms of the placement agent arrangement.
B. Conflicts of Interest Section Enhancement
In addition to the standalone placement agent section described above, the PPM's "Conflicts of Interest" section should be enhanced to include disclosure of the placement agent engagement and the conflicts that it creates. The following language (or substantially similar language) should be added to the Conflicts of Interest section:
Placement Agent. The Sponsor has engaged Osprey Capital Markets LLC as the exclusive placement agent for the Fund. Osprey will receive a placement fee equal to 1.25% of committed capital for investors introduced by and placed through Osprey, payable solely by the Sponsor. This arrangement creates a potential conflict of interest in that the Sponsor has an economic incentive to accept capital commitments from investors sourced by Osprey, and the Sponsor's payment of the placement fee may affect the economic resources available to the Sponsor for other purposes, including but not limited to its commitment to the Fund and its ability to support the Fund's operations. The Sponsor has agreed to pay the placement fee out of its own resources and not from Fund management fees, the Fund's assets, or any other amounts owed by or belonging to the Fund or its limited partners.
C. Fees and Expenses Section Enhancement
The PPM's "Fees and Expenses" section should clearly confirm the following with respect to the placement agent fee:
(a) The 1.25% placement agent fee payable to Osprey is not a Fund expense and is not borne by the Fund or its limited partners;
(b) The placement agent fee is not included in the $3,500,000 organizational expenses cap that is borne by the Fund;
(c) The placement agent fee is not subject to the 100% management fee offset applicable to transaction fees, monitoring fees, break-up fees, and similar fees received by the General Partner or its affiliates from portfolio companies; and
(d) The management fee offset provision applies exclusively to fees received by the General Partner or its affiliates from portfolio companies and does not apply to placement agent fees paid by the Sponsor to Osprey.
This clarification is important to avoid any confusion among investors regarding the scope of the management fee offset and the allocation of placement agent costs. Investors may otherwise assume — incorrectly — that the placement agent fee reduces the management fee or is subject to the offset mechanism, and the PPM should leave no ambiguity on this point.
VIII. Form D Filing Considerations
A. Filing Requirements
Under Regulation D, Rule 503, the Fund (through its General Partner, Harrowgate Fund V GP LLC) is required to file a Form D with the SEC no later than 15 calendar days after the first sale of securities in the offering. The "first sale" for purposes of Rule 503 is the date of the First Close, which is currently targeted for August 15, 2025. Accordingly, the Form D filing deadline is approximately September 2, 2025, assuming a First Close on August 15, 2025. If the First Close date is moved forward or backward, the filing deadline will adjust accordingly.
Form D requires disclosure of broker-dealers involved in the offering. Specifically, Item 12 of Form D requires the issuer to identify each person who has been or will be paid, directly or indirectly, any commission or similar remuneration for solicitation of purchasers in connection with the offering. Osprey Capital Markets LLC must be listed in Item 12 with the following information:
(a) Osprey's full legal name;
(b) Osprey's CRD number (to be confirmed);
(c) The states in which Osprey has solicited or intends to solicit purchasers; and
(d) The total aggregate compensation paid or to be paid to Osprey, expressed as a dollar amount or as a percentage of the offering proceeds (or both).
We note that if Osprey begins soliciting investors before the First Close, a question may arise as to whether such solicitation constitutes a "sale" for purposes of the Form D filing trigger. Under Rule 506(b), the first "sale" is typically the initial closing — i.e., the date on which investors' capital commitments become binding and the limited partnership interests are issued. Pre-close solicitation activities, including the distribution of the PPM and the negotiation of side letters, do not generally constitute "sales" for Form D purposes. However, we should monitor this issue and be prepared to file the Form D earlier if circumstances warrant.
An amendment to the Form D must be filed annually and upon the occurrence of certain material changes, including changes in the persons identified in Item 12. If Osprey's engagement terminates or if additional broker-dealers are engaged during the fundraise, an amended Form D will need to be filed.
B. State Blue Sky / Notice Filings
In addition to the federal Form D filing, state notice filings are required in each U.S. state where limited partners are domiciled or where offers or sales of Fund interests are made. Rule 506(b) preempts state registration requirements under the National Securities Markets Improvement Act of 1996, but states retain the authority to require notice filings, filing fees, and consent-to-service-of-process forms.
Many state notice filing forms require identification of any broker-dealer involved in the offering and disclosure of the broker-dealer's compensation. Osprey's identity, CRD number, and compensation must be included in all state blue sky notice filings.
Based on the current investor pipeline and the known domiciles of prospective limited partners, state notice filings will be required in the following jurisdictions, at a minimum:
• Delaware — HCP, Velthorn Family Office LLC, and the Fund entities are organized in Delaware.
• New York — Osprey is headquartered in New York, and several prospective investors may have New York addresses or contacts.
• Massachusetts — The Kingsbridge Endowment Fund is understood to be located in Massachusetts.
• Illinois — Stonewall Partners Fund of Funds III LP has its headquarters in Illinois (though it is a Delaware limited partnership).
• Northmoor — State notice filing may be required in connection with the Northmoor State Pension System's commitment, depending on Northmoor's specific blue sky filing requirements.
• Other states — Additional state filings will be required as LP domiciles are identified during the fundraise.
Theresa Kim will be responsible for preparing the federal Form D and coordinating the state blue sky notice filings, with assistance from our regulatory group as needed. A draft Form D should be prepared well in advance of the filing deadline to ensure that all required information, including Osprey's details, is accurately and completely reflected.
IX. Action Items and Recommendations
A. Immediate Action Items
The following action items should be completed within the specified timeframes to ensure that all placement agent disclosure and compliance obligations are satisfied before the distribution of the PPM (target: June 2, 2025) and the First Close (target: August 15, 2025):
1. Osprey Certifications.
Request from Osprey Capital Markets LLC (Sandra J. Whitmore, Managing Director, Private Fund Advisory) the following items:
(a) A written certification of compliance with FINRA Rule 2030 (pay-to-play), confirming that Osprey and its covered associates have not made any disqualifying political contributions to officials of the State of Northmoor, the Northmoor State Pension System, or any other governmental entity that is a prospective investor in the Fund;
(b) Confirmation that no disqualifying political contributions have been made by Osprey or its covered associates to officials of any governmental entity within the applicable look-back period;
(c) A copy of Osprey's written pay-to-play compliance policies and procedures (including contribution pre-clearance, monitoring, and record-keeping procedures) for review by Calderwood & Harkness LLP;
(d) Osprey's CRD number and a copy of its most recent BrokerCheck report, or authorization for HCP or Calderwood & Harkness LLP to obtain the report, including any disciplinary or regulatory history;
(e) Confirmation that no sub-placement agent arrangements have been entered into or are contemplated in connection with the HPE Fund V engagement, and an undertaking that no such arrangements will be entered into without prior written notice to HCP and a determination by HCP and Calderwood & Harkness LLP of regulatory compliance.
Responsible: Stephen Adler Deadline: May 1, 2025
2. HCP Pay-to-Play Review.