CALDERWOOD & HARKNESS LLP Counselors at Law
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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
MEMORANDUM
July 27, 2022
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I. Executive Summary
This memorandum analyzes whether ICM Cascadia Co-Invest, LP (the "Vehicle" or the "Co-Invest"), a Delaware limited partnership formed on July 22, 2022 (Delaware Secretary of State File No. 7439218; Employer Identification Number 88-3921457), will be subject to the plan-asset rules under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"). The plan-asset rules, as codified in the Department of Labor's Plan Asset Regulation at 29 C.F.R. § 2510.3-101 (as modified by Section 3(42) of ERISA) (the "Plan Asset Regulation"), establish a framework under which the underlying assets of certain pooled investment vehicles may be deemed to constitute "plan assets" if benefit plan investors hold equity interests in such vehicles at or above specified thresholds. If plan-asset treatment were to apply, the managers and service providers of the Vehicle would become subject to ERISA's fiduciary standards and the prohibited transaction rules of ERISA § 406 and Code § 4975, which would impose significant compliance obligations and operational constraints.
The Vehicle is organized for the sole purpose of co-investing alongside Meridian Infrastructure Partners Fund IV, LP ("Fund IV") in the acquisition of 100% of the equity interests of Cascadia Renewables Holdings, Inc., an Oregon corporation (the "Target" or "Cascadia"), at an agreed enterprise value of $1,950,000,000. The total committed capital to the Vehicle is $300,000,000, consisting of a 0.01% general partner interest held by Meridian Infrastructure GP IV LLC (the "GP"), representing a capital commitment of $30,000, and a 99.99% limited partner interest held by Ironside Capital Management LP ("Ironside"), representing a capital commitment of $299,970,000. Together with Fund IV's commitment of $750,000,000, the total equity contribution to the acquisition is $1,050,000,000, with the balance of the enterprise value funded through acquisition debt.
Conclusion. Based on our analysis of (a) the composition of Ironside's investor base, including certifications and representations provided in connection with the subscription process, (b) the structural features of the Co-Invest as a single-investor co-investment vehicle, (c) the transfer restrictions and ERISA-related covenants contained in the Limited Partnership Agreement, and (d) the applicable legal framework, we conclude that the assets of ICM Cascadia Co-Invest, LP will NOT be treated as "plan assets" under the Plan Asset Regulation. Specifically, the benefit plan investor percentage attributable to Ironside's interest in the Co-Invest, determined by looking through Ironside to its underlying investor base, does not equal or exceed the 25% threshold established by the Plan Asset Regulation. Accordingly, the GP and service providers to the Vehicle are not subject to ERISA fiduciary obligations or prohibited transaction rules solely by virtue of their relationship with the Co-Invest.
This conclusion is subject to the ongoing monitoring recommendations set forth in Section IX below, and is based on facts and circumstances as of the date of this memorandum and the representations provided by Ironside as of such date.
II. Background and Structure of the Co-Investment Vehicle
A. Formation and Purpose
ICM Cascadia Co-Invest, LP was formed as a Delaware limited partnership pursuant to a Certificate of Limited Partnership filed with the Delaware Secretary of State on July 22, 2022 (File No. 7439218). The Vehicle's registered agent in the State of Delaware is Cascade Systems, located at 160 Greentree Drive, Suite 101, Dover, Delaware 19904. The Vehicle obtained its Employer Identification Number (88-3921457) from the Internal Revenue Service on July 25, 2022.
The Vehicle was organized for the sole and exclusive purpose of co-investing alongside Fund IV in the acquisition of Cascadia Renewables Holdings, Inc. through Cascadia Acquisition Corp. ("AcquisitionCo"), a newly formed Delaware corporation organized as a wholly owned acquisition subsidiary of Fund IV and the Co-Invest. The acquisition of the Target is being structured as a stock purchase, with AcquisitionCo acquiring 100% of the outstanding shares of Cascadia common stock from existing shareholders, including the founding Halverson family trust interests and certain institutional sellers. Closing of the acquisition is expected to occur on or about September 2, 2022, subject to Hart-Scott-Rodino clearance (the waiting period for which expired on July 18, 2022) and the satisfaction of customary closing conditions, including Oregon Public Utility Commission approval.
The total equity required for the acquisition is $1,050,000,000, which is being funded as follows:
The balance of the agreed enterprise value of $1,950,000,000 (i.e., $900,000,000) will be funded through a combination of a $975,000,000 senior secured term loan facility arranged by Atlas National Bank, N.A. and Pinnacle Credit Partners LLC, and approximately $75,000,000 of cash on Cascadia's balance sheet at closing (net of transaction expenses and working capital adjustments). The acquisition debt will be incurred at the AcquisitionCo and Target levels and will not constitute obligations of either the Co-Invest or Fund IV.
B. Partners. General Partner. The general partner of the Vehicle is Meridian Infrastructure GP IV LLC ("Meridian GP IV" or the "GP"), a Delaware limited liability company. Meridian GP IV also serves as the general partner of Fund IV and was formed in connection with the Fund IV fundraising process. The GP is managed by the following individuals:
• David R. Hargreaves, Managing Partner, who has served in this capacity since the formation of Meridian Infrastructure Management LLC in 2014 and has over 25 years of experience in infrastructure private equity;
• Lillian Fong, Partner, Portfolio, who leads the GP's portfolio management and monitoring function and is responsible for overseeing the financial performance of portfolio companies, including Cascadia following the acquisition; and
• Graham Whitfield, Partner, Operations, who leads the GP's operational value creation initiatives and is responsible for post-acquisition integration planning for the Cascadia investment.
The GP holds a 0.01% general partner interest in the Vehicle, representing a capital commitment of $30,000.
Limited Partner. The sole limited partner of the Vehicle is Ironside Capital Management LP ("Ironside"), a Delaware limited partnership headquartered at 590 Madison Avenue, 38th Floor, New York, New York 10022. Ironside was founded in 2009 by Marcus J. Calloway, who serves as Founder and Chief Investment Officer. Ironside is registered as an investment adviser with the U.S. Securities and Exchange Commission ("SEC") under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and files Form ADV with the SEC on an annual basis. As of Ironside's most recent Form ADV filing (dated March 31, 2022), Ironside manages approximately $14.8 billion in regulatory assets under management across its three principal investment strategies: (i) equity long/short, (ii) credit, and (iii) infrastructure. Ironside's infrastructure strategy, led by Renata Obasi, Senior Managing Director, manages approximately $3.2 billion across three distinct infrastructure-focused vehicles, including the flagship Ironside Infrastructure Opportunities Fund, LP, and two dedicated co-investment vehicles.
Ironside holds a 99.99% limited partner interest in the Vehicle, representing a capital commitment of $299,970,000.
C. LP Agreement Key Terms Relevant to ERISA Analysis
The Amended and Restated Agreement of Limited Partnership of ICM Cascadia Co-Invest, LP (the "LP Agreement"), dated July 29, 2022 (execution version), governs the internal affairs of the Vehicle. The LP Agreement is governed by Delaware law. Set forth below are the terms of the LP Agreement that are particularly relevant to the ERISA and benefit plan investor analysis.
Management Fee. The LP Agreement provides that no management fee will be charged to the Co-Invest. Pursuant to a Side Letter Agreement entered into between the GP and Ironside, also dated July 29, 2022 (the "Side Letter"), the parties confirmed that no management fee or asset-based fee of any kind will be payable by the Vehicle to the GP or any of its affiliates. This arrangement is common in single-investor co-investment vehicles and reflects the negotiated terms between Ironside and the Meridian platform.
Carried Interest. Section 5.02 of the LP Agreement provides that the GP is entitled to a carried interest (performance allocation) equal to 10% of net profits attributable to Ironside's limited partner interest, subject to an 8% preferred return, compounded quarterly. This carried interest waterfall is calculated on a whole-fund basis (as there is only a single investment), with a full catch-up to the GP following the achievement of the preferred return. By comparison, Fund IV's carried interest is 20% over an 8% preferred return — the reduced carry applicable to the Co-Invest reflects a negotiated co-investment economic arrangement that is customary for co-investment vehicles of this type.
Capital Calls. Section 4.01 of the LP Agreement governs the mechanics of capital contributions. Capital contributions are made upon written notice from the GP to the LP, with at least ten (10) business days' advance notice. A single capital call of $22,500,000 (representing 7.5% of total commitments) is anticipated on or about August 15, 2022, with the balance of commitments to be drawn in one or more subsequent capital calls prior to the closing of the Cascadia acquisition. The GP retains the right to issue additional capital calls as necessary to fund the Vehicle's pro rata share of the acquisition price and related transaction expenses.
Material Impediment Event and Dormancy. Section 7.04 of the LP Agreement addresses material impediment events, which include circumstances in which the closing of the Cascadia acquisition is delayed beyond a specified date or is otherwise unable to be consummated due to regulatory, financing, or other impediments. If a material impediment event occurs and the Vehicle has not deployed its committed capital within eighteen (18) months of the initial capital call, the Vehicle enters a "dormancy" status. Under Section 7.04(c), upon the occurrence of dormancy, Ironside has the right to elect a wind-down of the Vehicle, in which case the GP is required to return all previously contributed capital (to the extent not deployed or reserved for expenses) to Ironside within sixty (60) days.
D. Distinguishing Features from Fund IV
The Co-Invest is structurally distinct from Fund IV in several material respects that bear directly on the ERISA analysis:
Single-Investor Vehicle. The most significant distinguishing feature is that the Co-Invest is a single-investor co-investment vehicle. Ironside Capital Management LP is the sole limited partner, and no other investor has been admitted or is anticipated to be admitted as a limited partner in the Vehicle. By contrast, Fund IV is a commingled fund with a total committed capital of approximately $6.2 billion, sourced from multiple limited partners including public pension funds, sovereign wealth funds, insurance companies, endowments, family offices, and other institutional investors. Fund IV's investor base includes approximately 47 limited partners across multiple feeder structures (including a parallel fund and an alternative investment vehicle).
No Additional Subscriptions. The LP Agreement does not contemplate the admission of additional limited partners. The Vehicle was formed specifically to accommodate Ironside's co-investment allocation in the Cascadia acquisition, and the terms of the LP Agreement and the Co-Investment Allocation Agreement (discussed in Section VII below) are tailored to a single-investor structure.
Simplified ERISA Analysis. Because the Co-Invest has only one limited partner, the benefit plan investor analysis reduces to a single inquiry: what percentage of Ironside's own capital attributable to the Co-Invest commitment is, directly or indirectly, attributable to benefit plan investors? This is in contrast to a commingled fund analysis, which requires aggregation of benefit plan investor participation across multiple limited partners and feeder structures. The single-investor structure significantly simplifies both the initial ERISA analysis and ongoing monitoring.
III. Applicable Legal Framework
A. ERISA Plan Asset Regulation — 29 C.F.R. § 2510.3-101
The Plan Asset Regulation, promulgated by the Department of Labor ("DOL") at 29 C.F.R. § 2510.3-101 and as modified by Section 3(42) of ERISA (added by the Pension Protection Act of 2006), establishes the rules for determining when the underlying assets of a pooled investment vehicle are treated as "plan assets" for purposes of ERISA and the Code. The consequences of plan-asset treatment are substantial: if the assets of a fund or investment vehicle are deemed plan assets, the fund's managers, general partners, investment advisers, and service providers become fiduciaries under ERISA § 3(21) with respect to such assets, and all transactions involving those assets are subject to ERISA's stringent fiduciary standards (§§ 404, 405) and prohibited transaction rules (§ 406), as well as the parallel excise tax provisions of Code § 4975.
Under the Plan Asset Regulation, the assets of an entity will be treated as plan assets of a benefit plan investor if such benefit plan investor acquires an "equity interest" in the entity, unless an exemption from plan-asset treatment applies. The regulation defines "equity interest" 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. A limited partnership interest of the type held by Ironside in the Co-Invest is an equity interest within the meaning of the regulation.
The regulation defines "benefit plan investors" to include three categories of investors:
(i) Employee benefit plans that are subject to the fiduciary responsibility provisions of Part 4 of Title I of ERISA (i.e., private-sector employee pension benefit plans and employee welfare benefit plans, excluding governmental plans and church plans that have not elected ERISA coverage);
(ii) Plans described in Code § 4975(e)(1), which are subject to the prohibited transaction excise taxes under Code § 4975, including individual retirement accounts ("IRAs") and individual retirement annuities, Keogh plans (HR-10 plans), and certain other tax-favored arrangements; and
(iii) Entities whose underlying assets include plan assets by reason of a plan's investment in the entity — commonly referred to as "look-through" entities. If an entity is itself treated as holding plan assets (because benefit plan investors hold 25% or more of its equity interests, and no exemption applies), then the entity is itself a benefit plan investor with respect to any downstream investment it makes.
The critical operative provision of the Plan Asset Regulation is the "25% Threshold Test." Under 29 C.F.R. § 2510.3-101(f), the plan-asset rules do not apply to an entity if benefit plan investors hold, in the aggregate, less than 25% of the total value of each class of equity interests in the entity, excluding equity interests held by persons (other than benefit plan investors) who have discretionary authority or control over the assets of the entity or who provide investment advice for a fee (direct or indirect) with respect to such assets, or any affiliate of such persons. In the context of a limited partnership, this means that the interests of the general partner and its affiliates are disregarded for purposes of calculating the benefit plan investor percentage, and the 25% test is applied to the remaining equity interests (i.e., the limited partner interests).
The 25% Threshold Test is applied at the time of each acquisition of an equity interest in the entity. In the context of a limited partnership, an "acquisition" occurs not only at the time of the initial subscription, but also at the time of each subsequent capital call (because the limited partner's equity interest is deemed to increase each time capital is contributed). Accordingly, the benefit plan investor percentage must be measured and confirmed not only at the time of the initial closing but also at each subsequent capital call date.
B. Exemptions from Plan Asset Treatment
The Plan Asset Regulation provides several exemptions from plan-asset treatment. An entity whose equity interests are held by benefit plan investors in an amount equal to or exceeding the 25% threshold may nonetheless avoid plan-asset treatment if one of the following exemptions applies:
1. Publicly Offered Securities Exemption (29 C.F.R. § 2510.3-101(b)). This exemption applies to entities whose equity interests are "publicly offered securities" — i.e., securities that are freely transferable, widely held, and registered under the Securities Act of 1933 or the Securities Exchange Act of 1934. This exemption is not applicable to the Vehicle, as the Co-Invest is a private limited partnership whose interests have not been registered under the federal securities laws and are subject to significant transfer restrictions.
2. Operating Company Exemption (29 C.F.R. § 2510.3-101(c)). This exemption applies to entities that are "operating companies" — i.e., entities that are primarily engaged, directly or through a majority-owned subsidiary, in the production or sale of a product or service other than the investment of capital. The Vehicle is not an operating company; it is a passive investment holding vehicle organized for the sole purpose of holding an equity interest in AcquisitionCo, which in turn will hold 100% of the stock of Cascadia. Although Cascadia itself is an operating company — it owns and operates 14 hydroelectric facilities, 6 wind farms, and 3 water-treatment concessions across the Pacific Northwest — the operating company analysis must be conducted at the level of the Vehicle, not at the level of the Target. The Vehicle does not itself engage in operating activities. Accordingly, this exemption is not available.
3. Venture Capital Operating Company ("VCOC") Exemption (29 C.F.R. § 2510.3-101(d)). This exemption applies to entities that obtain and exercise certain "management rights" with respect to at least one portfolio company and that have at least 50% of their assets (valued at cost) invested in operating companies as to which the entity has obtained management rights. The management rights requirement is typically satisfied through contractual provisions such as board seats, consultation rights, and inspection rights. In this case, the Vehicle will not itself exercise management rights over Cascadia or AcquisitionCo. Rather, the GP and the Fund IV investment team (the Meridian platform) will exercise management rights over the Target. The Vehicle is a passive co-investor that participates economically in the acquisition alongside Fund IV but does not independently hold or exercise governance or management rights. Accordingly, the VCOC exemption is unlikely to be available to the Vehicle, and we have not relied on it in reaching our conclusion.
4. Real Estate Operating Company ("REOC") Exemption (29 C.F.R. § 2510.3-101(e)). This exemption applies to entities that have at least 50% of their assets (valued at cost) invested in real estate that is managed or developed by the entity or on its behalf, and that are actively engaged in the management or development of such real estate. Cascadia's assets are primarily energy infrastructure (hydroelectric and wind generation facilities) and water infrastructure (water-treatment concessions), not real estate within the meaning of the Plan Asset Regulation. Although certain of Cascadia's assets may involve interests in real property (e.g., land underlying hydroelectric facilities), the entity's primary business is energy and water infrastructure, not real estate investment, management, or development. This exemption is not applicable.
5. Less-Than-25% Benefit Plan Investor Test (29 C.F.R. § 2510.3-101(f)). As discussed in detail in Section IV below, this is the primary basis for our conclusion that the assets of the Co-Invest are not plan assets. Because the aggregate participation by benefit plan investors in the Co-Invest's equity — determined by looking through Ironside to its underlying investor base — does not equal or exceed 25% of the Co-Invest's total equity interests (excluding the GP's interest), the plan-asset rules do not apply.
6. Insurance Company General Account Exemption and Governmental Plan Exclusion. For completeness, we note that (a) insurance company general accounts are subject to a separate regulatory framework under ERISA § 401(c) and DOL Regulation 29 C.F.R. § 2550.401c-1, and assets held in an insurance company's general account are generally not treated as plan assets for purposes of the Plan Asset Regulation (although insurance company separate accounts may be treated differently); and (b) governmental plans, as defined in ERISA § 3(32), are excluded from the definition of "employee benefit plan" under ERISA and are not benefit plan investors for purposes of the 25% Threshold Test. Similarly, church plans that have not elected coverage under ERISA § 410(d) are excluded from the ERISA Title I provisions and are not benefit plan investors. These exclusions are relevant to the composition analysis of Ironside's investor base, as discussed in Section IV.B below.
C. "Look-Through" Analysis for Ironside's Investor Base
Because the Co-Invest is a single-investor vehicle in which Ironside Capital Management LP is the sole limited partner, and because Ironside is itself a pooled investment vehicle (a Delaware limited partnership and SEC-registered investment adviser that manages capital on behalf of multiple underlying investors), the ERISA analysis requires a "look-through" to determine whether Ironside's own underlying investors include benefit plan investors.
The DOL has consistently taken the position that the 25% Threshold Test requires looking through intermediate entities that are themselves subject to (or would be subject to) plan-asset treatment. If an intermediate entity (such as Ironside or one of its feeder vehicles) is itself a look-through entity — i.e., an entity whose assets are plan assets by reason of benefit plan investor participation at or above 25% — then the full amount of that entity's investment in the Co-Invest would be counted as a benefit plan investor investment for purposes of the 25% test applied at the Co-Invest level. Conversely, if Ironside is not a look-through entity (because benefit plan investors hold less than 25% of its equity interests), then none of Ironside's investment in the Co-Invest would be attributed to benefit plan investors for purposes of the threshold test at the Co-Invest level.
However, as a conservative and more precise approach — and consistent with DOL guidance and customary market practice — we analyze the benefit plan investor percentage by looking through Ironside to determine what actual percentage of Ironside's capital contribution to the Co-Invest is indirectly attributable to benefit plan investors. This approach ensures that even if Ironside's overall benefit plan investor percentage were to increase in the future, the analysis at the Co-Invest level would accurately capture the percentage of plan-asset dollars flowing into the Vehicle.
The 25% Threshold Test is thus applied at the level of ICM Cascadia Co-Invest, LP, looking through Ironside's limited partner interest to the underlying investors in the relevant Ironside infrastructure strategy vehicles from which the capital for the Co-Invest commitment is drawn.
IV. Analysis of Ironside's Investor Composition
A. Overview of Ironside's Fund Structure
As noted above, Ironside manages approximately $14.8 billion across three principal investment strategies: equity long/short (approximately $8.4 billion), credit (approximately $3.2 billion), and infrastructure (approximately $3.2 billion). Each strategy is managed through one or more dedicated fund vehicles, with separate feeder structures designed to accommodate the tax, regulatory, and reporting needs of different investor types (including U.S. taxable investors, U.S. tax-exempt investors, and non-U.S. investors).
The infrastructure strategy, led by Renata Obasi, manages approximately $3.2 billion across three vehicles:
(a) Ironside Infrastructure Opportunities Fund, LP (the "Infrastructure Fund"), a Delaware limited partnership that serves as the primary infrastructure strategy vehicle, with approximately $2.4 billion in committed capital;
(b) Ironside Infrastructure Opportunities (Offshore) Fund, Ltd. (the "Offshore Feeder"), a Cayman Islands exempted company that serves as a feeder vehicle for non-U.S. investors, with approximately $550 million in committed capital; and
(c) Ironside Infrastructure Co-Invest I, LP, a Delaware limited partnership used for prior co-investment allocations, with approximately $250 million in committed capital.
The capital committed to the Co-Invest ($300 million) is drawn from Ironside's infrastructure strategy allocation. Specifically, Ironside has represented that the Co-Invest commitment will be funded from the Infrastructure Fund and the Offshore Feeder in proportion to their respective capital commitments to the infrastructure strategy, with the Infrastructure Fund contributing approximately $227 million and the Offshore Feeder contributing approximately $73 million. The key question for the ERISA analysis is: what percentage of the capital in these contributing vehicles is attributable to benefit plan investors?
B. Benefit Plan Investor Percentage
Based on representations and certifications provided by Ironside in connection with the subscription process for the Co-Invest — including an ERISA Certification Letter dated July 26, 2022, executed by Marcus J. Calloway, Founder & CIO, and Ironside's General Counsel, Priya Venkataraman — benefit plan investors (as defined in the Plan Asset Regulation) hold less than 25% of the equity interests in each Ironside feeder fund and strategy vehicle contributing capital to the Co-Invest commitment.
Ironside has represented that the aggregate benefit plan investor percentage across its infrastructure strategy vehicles is approximately 17.3%, which is well below the 25% threshold. This percentage reflects the benefit plan investor participation measured as of Ironside's most recent quarterly measurement date (June 30, 2022), and is based on Ironside's internal records, subscription documentation, and ERISA questionnaires completed by Ironside's underlying investors.
The composition of Ironside's infrastructure strategy investor base, as represented by Ironside, is summarized as follows:
Based on the foregoing composition, the aggregate benefit plan investor percentage is calculated as follows:
• U.S. corporate pension plans (ERISA-covered): 11.2%
• IRAs and Keogh plans (Code § 4975 plans): 4.3%
• Other plans subject to ERISA or Code § 4975: 1.8% (estimated, to account for any reclassifications or ambiguous categorizations)
• Total benefit plan investor percentage: approximately 17.3%
The following categories of investors are excluded from the definition of benefit plan investors and do not count toward the 25% threshold:
Sovereign Wealth Funds. Sovereign wealth funds are instrumentalities of foreign governments and are not employee benefit plans subject to ERISA or plans described in Code § 4975(e)(1). Their participation in Ironside's infrastructure strategy does not count toward the 25% threshold.
Foreign Pension and Retirement Plans. Non-U.S. pension and retirement plans are not subject to ERISA (which applies only to plans maintained by employers engaged in commerce or in an industry or activity affecting commerce in the United States) and are not described in Code § 4975(e)(1). Accordingly, foreign pension plan investors are excluded from the benefit plan investor definition.
U.S. Governmental Plans. State and local government pension funds and other governmental plans are excluded from the definition of "employee benefit plan" under ERISA § 3(32) and are therefore not benefit plan investors for purposes of the Plan Asset Regulation. Ironside has confirmed that the approximately 14.9% of infrastructure AUM attributable to governmental plans consists of investments from seven U.S. state pension systems and two municipal retirement systems, each of which qualifies as a "governmental plan" within the meaning of ERISA § 3(32).
Endowments and Foundations. University endowments and private foundations are not employee benefit plans subject to ERISA, provided they are not themselves structured as ERISA-covered trusts. Ironside has confirmed that none of the endowment or foundation investors in its infrastructure strategy vehicles is an ERISA-covered plan.
Family Offices and High-Net-Worth Individuals. Investments from family offices and high-net-worth individuals are not made through ERISA-covered plans or Code § 4975 plans and therefore do not count toward the 25% threshold.
Insurance Company General Accounts. Under ERISA § 401(c) and DOL Regulation 29 C.F.R. § 2550.401c-1, assets of an insurance company's general account are generally not treated as plan assets, and insurance company general account investors are not treated as benefit plan investors for purposes of the 25% Threshold Test.
Church Plans. Church plans, as defined in ERISA § 3(33) and Code § 414(e), that have not elected coverage under ERISA § 410(d) are excluded from the fiduciary responsibility provisions of ERISA Title I and are not benefit plan investors. Ironside has confirmed that the church plan investors in its infrastructure vehicles have not elected ERISA coverage.
C. Measurement Methodology
The 25% Threshold Test under the Plan Asset Regulation is applied at the time of each "acquisition" of an equity interest in the Co-Invest. In the limited partnership context, an equity interest is deemed to be acquired at the time of each capital contribution. Accordingly, the benefit plan investor percentage must be measured and confirmed on the following dates:
(i) Initial subscription date — July 29, 2022, the date on which Ironside executed the Subscription Agreement and the LP Agreement and was admitted as a limited partner of the Co-Invest;
(ii) Capital Call #1 — expected on or about August 15, 2022, when the first capital call of $22,500,000 is anticipated to be funded by Ironside; and
(iii) Each subsequent capital call date — if additional capital calls are made in connection with the Cascadia acquisition closing or for transaction expenses.
Because Ironside is the sole limited partner of the Co-Invest, the benefit plan investor percentage at the Co-Invest level is determined entirely by looking through Ironside to its underlying investor base. The relevant percentage is the proportion of Ironside's capital commitment to the Co-Invest that is, directly or indirectly, attributable to benefit plan investors. Based on the current composition of Ironside's infrastructure strategy vehicles (as described in Section IV.B above), the benefit plan investor percentage is approximately 17.3%, which is well below the 25% threshold.
For purposes of applying the 25% test, the GP's 0.01% general partner interest ($30,000 commitment) is excluded from the denominator, consistent with the Plan Asset Regulation's requirement to disregard equity interests held by persons (other than benefit plan investors) who have discretionary authority or control over the assets of the entity. The GP, as the entity exercising discretionary authority and control over the Vehicle's assets, is such a person. Thus, the 25% test is applied solely to Ironside's 99.99% limited partner interest.
Based on the current benefit plan investor composition, the analysis on Capital Call #1 (expected August 15, 2022) would yield the same result. Ironside has not indicated any material change in its investor composition between the June 30, 2022, measurement date and the expected August 15, 2022, capital call date. Absent a material change in Ironside's investor base — such as a significant redemption by non-benefit-plan investors or a significant new subscription by benefit plan investors — the benefit plan investor percentage is expected to remain below 25%.
D. Subscription Agreement Representations
The Subscription Agreement for ICM Cascadia Co-Invest, LP (execution version, dated July 29, 2022) includes a comprehensive set of representations and warranties by Ironside, including the following representations relevant to the ERISA and benefit plan investor analysis:
(a) Accredited Investor and Qualified Purchaser Status. Ironside has represented that it is an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933, as amended, and a "qualified purchaser" within the meaning of Section 2(a)(51) of the Investment Company Act of 1940, as amended.
(b) ERISA Status. Ironside has represented that it is not (i) an "employee benefit plan" as defined in ERISA § 3(3) that is subject to Part 4 of Title I of ERISA, (ii) a "plan" as defined in Code § 4975(e)(1), or (iii) an entity whose underlying assets include "plan assets" by reason of an ERISA plan's or Code § 4975 plan's investment in such entity (i.e., Ironside is not a look-through entity). Ironside has further represented that, to its knowledge, benefit plan investors hold less than 25% of each class of equity interests in the Ironside infrastructure strategy vehicles from which the Co-Invest commitment will be funded.
(c) 25% Threshold Confirmation. Ironside has confirmed that its capital commitment to the Co-Invest does not constitute "plan assets" that would, individually or in the aggregate, cause the Vehicle to hold plan assets in excess of the 25% threshold established by the Plan Asset Regulation.
(d) Ongoing Notification Obligation. Ironside has agreed to promptly notify the GP if, at any time during the term of the Co-Invest, the benefit plan investor percentage attributable to Ironside's interest equals or exceeds 25%, or if Ironside becomes aware of any facts or circumstances that would reasonably be expected to cause the benefit plan investor percentage to equal or exceed 25%.
In addition to the Subscription Agreement representations, Ironside provided a separate ERISA Certification Letter dated July 26, 2022 (the "Certification Letter"), executed by Marcus J. Calloway and Priya Venkataraman on behalf of Ironside, certifying the benefit plan investor percentage and attaching supporting documentation from Ironside's compliance records. The Certification Letter has been filed with the Vehicle's records and is maintained by Calderwood & Harkness LLP as Appendix B to this memorandum (referenced only; the original document is maintained in the C&H document management system under the relevant matter number).
V. Structural Safeguards in the LP Agreement
A. ERISA-Related Provisions
The LP Agreement incorporates several structural safeguards designed to monitor and preserve the Vehicle's non-plan-asset status on an ongoing basis.
Monitoring Covenant. Section 9.03 of the LP Agreement includes a covenant requiring Ironside to notify the GP promptly, and in any event within five (5) business days, if the benefit plan investor percentage attributable to Ironside's interest in the Vehicle approaches or exceeds 25%. For purposes of this covenant, the parties have agreed that Ironside's notification obligation is triggered when the benefit plan investor percentage reaches or exceeds 20% (providing a five-percentage-point buffer below the 25% threshold). This early-warning mechanism is designed to allow the GP and the Vehicle's counsel to assess the situation and take remedial action, if necessary, before the 25% threshold is breached.
Transfer Restrictions. Section 8.01 of the LP Agreement imposes significant restrictions on the transfer of limited partnership interests in the Vehicle. Among other conditions, Section 8.01(b)(iv) provides that no transfer of a limited partnership interest shall be permitted if such transfer would, in the reasonable determination of the GP, cause benefit plan investors to hold, directly or indirectly, 25% or more of any class of equity interests in the Vehicle. This restriction serves as a structural safeguard against the inadvertent introduction of benefit plan investor capital through secondary transfers or assignments.
Forced Withdrawal. Section 8.05 of the LP Agreement grants the GP the right to require any limited partner (or, in a multi-investor fund, any limited partner whose participation would cause plan-asset treatment) to withdraw from the Vehicle if the GP determines, in its reasonable discretion, that continued participation by such limited partner would cause the assets of the Vehicle to be treated as plan assets under ERISA. In the context of a single-investor vehicle, this provision would require the GP to exercise the forced withdrawal right against Ironside — an extreme measure that would effectively terminate the Vehicle. While the practical likelihood of this provision being invoked is remote, it provides the GP with a contractual mechanism to protect the Vehicle's non-plan-asset status.
Additional ERISA Covenants. Section 9.04 of the LP Agreement contains representations and covenants related to ERISA compliance more broadly, including (a) a representation by Ironside that it has not relied on any advice or recommendation from the GP or its affiliates in making its investment decision with respect to the Co-Invest, (b) an acknowledgment that the GP has not undertaken to act as an ERISA fiduciary with respect to the assets contributed by Ironside, and (c) a covenant by Ironside to provide the GP with such information regarding its investor composition and ERISA status as the GP may reasonably request from time to time.
B. Single-Investor Structure as a Mitigant
As discussed throughout this memorandum, the Co-Invest's single-investor structure serves as a significant mitigant against the risk of inadvertent plan-asset treatment. Because Ironside is the sole limited partner, there is no risk of incremental benefit plan investor participation through new subscriptions by additional investors. The sole variable affecting the benefit plan investor percentage is the composition of Ironside's own investor base — specifically, the investor composition of the Ironside infrastructure strategy vehicles from which the Co-Invest commitment is funded.
Ironside monitors its benefit plan investor percentage on an ongoing basis as part of its comprehensive compliance program as an SEC-registered investment adviser. Ironside's Chief Compliance Officer, Diana Lau, oversees the firm's ERISA monitoring function, which includes quarterly reviews of investor composition across all strategy vehicles, review of new subscription agreements and ERISA questionnaires for incoming investors, and tracking of redemptions and withdrawals that could affect the benefit plan investor percentage. Ironside has confirmed to Calderwood & Harkness LLP that its compliance infrastructure is robust and that the firm has not experienced any instances of inadvertent plan-asset treatment across any of its investment vehicles since the firm's founding in 2009.
The single-investor structure eliminates several sources of risk that are present in commingled fund structures, including (a) the risk that a new limited partner's subscription introduces benefit plan investor capital in excess of the 25% threshold, (b) the risk that a non-benefit-plan investor's redemption or withdrawal changes the denominator in the 25% calculation, causing the percentage to increase above 25%, and (c) the administrative complexity of aggregating benefit plan investor participation across multiple limited partners and feeder structures. In a single-investor vehicle, the benefit plan investor percentage is a function solely of the composition of the single investor's own capital base, which is a known and monitorable quantity.
VI. Consequences if Plan Asset Treatment Were to Apply (Hypothetical)
While we conclude that the assets of the Co-Invest are not plan assets under the Plan Asset Regulation, it is prudent to consider the consequences that would follow if, hypothetically, the 25% threshold were to be breached and no exemption were available. This hypothetical analysis underscores the importance of ongoing monitoring and compliance with the safeguards described in Sections V and IX of this memorandum.
Fiduciary Status. If the assets of the Co-Invest were treated as plan assets, the GP — Meridian Infrastructure GP IV LLC — and its individual managers (David R. Hargreaves, Lillian Fong, and Graham Whitfield) would become "fiduciaries" within the meaning of ERISA § 3(21)(A) with respect to the Co-Invest's assets. As ERISA fiduciaries, they would be subject to ERISA's fiduciary duty standards, including the duty of prudence (ERISA § 404(a)(1)(B)), the duty of loyalty and exclusive benefit (ERISA § 404(a)(1)(A)), the duty to diversify plan investments (ERISA § 404(a)(1)(C)), and the duty to act in accordance with plan documents (ERISA § 404(a)(1)(D)). These duties are among the strictest fiduciary standards in American law and would be enforceable by the DOL, the participating benefit plan investors, and plan participants and beneficiaries.
Prohibited Transaction Rules. All transactions involving the Co-Invest's assets would need to comply with ERISA's prohibited transaction rules under § 406. ERISA § 406(a) prohibits a fiduciary from causing a plan to engage in certain transactions with "parties in interest" (as defined in ERISA § 3(14)), including sales, exchanges, or leases of property between a plan and a party in interest (§ 406(a)(1)(A)); lending of money between a plan and a party in interest (§ 406(a)(1)(B)); furnishing of goods, services, or facilities between a plan and a party in interest (§ 406(a)(1)(C)); and transfers of plan assets to or for the benefit of a party in interest (§ 406(a)(1)(D)). ERISA § 406(b) separately prohibits a fiduciary from dealing with plan assets in its own interest or for its own account (§ 406(b)(1)), acting in a transaction involving the plan on behalf of an adverse party (§ 406(b)(2)), and receiving consideration from any party dealing with the plan in connection with a transaction involving plan assets (§ 406(b)(3)). Parallel excise tax provisions under Code § 4975 would impose a two-tier excise tax (15% initial tax, 100% additional tax if not corrected) on any disqualified person who engages in a prohibited transaction.
Party-in-Interest Status of Service Providers. If plan-asset treatment were to apply, the Co-Invest's service providers would become "parties in interest" within the meaning of ERISA § 3(14), which defines the term broadly to include fiduciaries, persons providing services to the plan, and their affiliates. In the context of the Co-Invest, the following entities and individuals would likely be deemed parties in interest:
• Calderwood & Harkness LLP, as legal counsel to the Vehicle;
• Kendrick Thorne & Associates LLP, as fund administrator for the Vehicle;
• Atlas National Bank, N.A., as lender under the senior secured term loan facility for the Cascadia acquisition and as potential custodian or banking service provider;
• Pinnacle Credit Partners LLC, as co-lender under the term loan facility;
• The GP and its individual managers (Hargreaves, Fong, Whitfield); and
• Any other person providing services to the Vehicle for a fee.
Transactions between the Co-Invest and any of these parties in interest would need to qualify for a statutory or administrative exemption from the prohibited transaction rules. The most commonly relied-upon exemption for service provider relationships is ERISA § 408(b)(2), which permits a plan to engage a service provider and pay reasonable compensation for necessary services, provided that no more than reasonable compensation is paid and certain disclosure requirements are satisfied. In this regard, the GP's management fee arrangement (0% management fee, per the Side Letter) and carried interest arrangement (10% above an 8% preferred return) would need to be analyzed under the § 408(b)(2) reasonable compensation standards to confirm compliance.
Impact on Acquisition Financing. Plan-asset treatment could also create prohibited transaction concerns with respect to the underlying Cascadia acquisition financing structure. The $975 million senior secured term loan facility arranged by Atlas National Bank, N.A. and Pinnacle Credit Partners LLC is an obligation of AcquisitionCo and the Target, not of the Co-Invest. However, to the extent the Co-Invest's assets (i.e., its equity interest in AcquisitionCo) are plan assets, the use of those assets as part of a transaction in which Atlas National Bank (a party in interest) is also a lender could raise prohibited transaction issues under ERISA § 406(a)(1)(B) (extension of credit between a plan and a party in interest) and § 406(a)(1)(D) (transfer of plan assets for the benefit of a party in interest). While these issues could potentially be addressed through available exemptions (including DOL Prohibited Transaction Class Exemption 84-14 for transactions directed by qualified professional asset managers), the analysis would be complex and would impose significant administrative and legal costs.
Administrative and Compliance Burdens. Beyond the specific fiduciary and prohibited transaction concerns, plan-asset treatment would impose substantial ongoing administrative and compliance burdens on the GP and the Vehicle's service providers, including the requirement to maintain books and records in accordance with ERISA's reporting and disclosure obligations, to file Form 5500 annual reports (or to ensure that the participating benefit plan investors include the Vehicle's assets on their own Form 5500 filings), and to comply with the DOL's audit and examination requirements. These burdens would be particularly onerous for a single-investment co-investment vehicle that was not designed or structured to bear such compliance costs.
This hypothetical analysis reinforces the critical importance of the monitoring and compliance measures described in Section IX below and underscores why the structural safeguards in the LP Agreement — including the 20% early-warning threshold, transfer restrictions, and forced withdrawal provisions — are essential features of the Vehicle's ERISA risk management framework.
VII. Interaction with Co-Investment Allocation Agreement
The Co-Investment Allocation Agreement (execution version, dated July 29, 2022) (the "Allocation Agreement") between Fund IV and the Co-Invest governs the economic and structural terms of the co-investment in Cascadia. The Allocation Agreement establishes the relative economic interests of Fund IV (71.43%) and the Co-Invest (28.57%) in the acquisition, including the allocation of investment returns, expenses, and liabilities. The Allocation Agreement also governs the coordination between Fund IV and the Co-Invest with respect to capital calls, distributions, dispositions, and the exercise of governance and voting rights at the AcquisitionCo and Target levels.
Independence of ERISA Analyses. Fund IV has its own ERISA analysis, which was conducted by Fund IV's legal counsel, Breckenridge Sloane & Pratt LLP. Calderwood & Harkness LLP has not been retained to conduct, review, or opine on Fund IV's ERISA analysis, and this memorandum does not address the plan-asset status of Fund IV. The Co-Invest's ERISA status is independent of Fund IV's ERISA status, and each vehicle's plan-asset determination is made separately based on the composition of its own investor base and the application of the Plan Asset Regulation to its own structure.
No Cross-Contamination. It is important to note that even if Fund IV were subject to plan-asset treatment (a matter on which we express no view), this would not automatically cause the Co-Invest to be subject to plan-asset treatment. The plan-asset determination is made at the entity level, and the 25% Threshold Test is applied by looking at the equity interests in each entity separately. The Co-Invest and Fund IV are separate legal entities (each a separate Delaware limited partnership), with distinct LP agreements, distinct investor bases, and distinct capital structures. The fact that they co-invest through a common acquisition subsidiary (AcquisitionCo) does not cause the plan-asset determination for one vehicle to be attributed to the other. Conversely, the Co-Invest's non-plan-asset status does not affect or determine Fund IV's ERISA analysis.
Governance Considerations at AcquisitionCo Level. Notwithstanding the independence of the ERISA analyses at the Vehicle and Fund IV levels, care should be taken to ensure that the governance structure of AcquisitionCo does not create unintended ERISA fiduciary relationships. Specifically, to the extent the Co-Invest has board designation or approval rights at the AcquisitionCo or Target level (which, based on our review of the Allocation Agreement, is limited to a single board observer right, not a voting board seat), the exercise of such rights should be structured to avoid any inference that the Co-Invest is exercising discretionary authority or control over Fund IV's assets. If Fund IV is subject to plan-asset treatment, the exercise of governance rights by a non-plan-asset co-investor at the portfolio company level could, in theory, give rise to arguments that the co-investor has become a fiduciary with respect to Fund IV's plan assets — though such arguments would be highly fact-specific and, in our view, unlikely to succeed based on the current governance structure. We recommend that the parties maintain clear delineation between the governance roles of Fund IV and the Co-Invest at the AcquisitionCo and Target levels.
VIII. State Law and Other Regulatory Considerations
Delaware Limited Partnership Law. The ERISA plan-asset analysis does not affect the Vehicle's characterization under the Delaware Revised Uniform Limited Partnership Act (6 Del. C. §§ 17-101 et seq.). The Vehicle remains a Delaware limited partnership for all purposes of Delaware law, and the LP Agreement governs the internal affairs of the partnership, including the rights and obligations of the GP and Ironside, capital call and distribution mechanics, dissolution and winding-up procedures, and the allocation of profits and losses. The ERISA analysis is a federal regulatory overlay that determines whether certain federal fiduciary and prohibited transaction rules apply to the Vehicle and its managers, but does not alter the partnership's state-law characteristics or governance structure.
Oregon Corporate Law. Cascadia Renewables Holdings, Inc. is an Oregon corporation organized under the Oregon Business Corporation Act (ORS Chapter 60). No state-level plan-asset concerns arise under Oregon law in connection with the acquisition. Oregon does not have a state-law analogue to the federal ERISA plan-asset regulation, and the corporate governance of Cascadia (including the composition and fiduciary duties of its board of directors following the acquisition) is governed by Oregon corporate law, not by ERISA. However, we note that Cascadia holds certain regulated utility assets in Oregon (including hydroelectric facilities subject to the jurisdiction of the Oregon Public Utility Commission and water-treatment concessions subject to Oregon environmental permitting), and the change-of-control regulatory approvals required in connection with the acquisition are governed by Oregon regulatory law, not by ERISA.
SEC and Investment Adviser Considerations. Ironside's status as an SEC-registered investment adviser under the Advisers Act is separate and distinct from the ERISA plan-asset analysis. Ironside is subject to the fiduciary duties imposed by the Advisers Act (including the duties of care and loyalty articulated in SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963)) independently of any ERISA fiduciary obligations. Ironside's Advisers Act compliance program, including its written compliance policies and procedures adopted under Rule 206(4)-7, its annual compliance review, and its Form ADV disclosures, address Ironside's regulatory obligations as an investment adviser but do not directly address the plan-asset status of the vehicles in which Ironside's capital is invested. That said, Ironside's robust compliance infrastructure — including its ERISA monitoring function described in Section V.B above — provides an additional layer of assurance regarding the accuracy and reliability of the benefit plan investor certifications upon which the analysis in this memorandum relies.
IX. Ongoing Monitoring Recommendations
Based on the analysis set forth in this memorandum, we recommend the following ongoing monitoring measures to ensure that the Co-Invest's non-plan-asset status is maintained throughout the term of the Vehicle:
1. Quarterly Monitoring. Ironside should continue to monitor the benefit plan investor percentage in its infrastructure strategy vehicles on at least a quarterly basis, consistent with its current compliance practices. Each quarterly review should assess whether the benefit plan investor percentage has changed materially since the prior review and whether the percentage remains below 25%. Calderwood & Harkness LLP should be notified of the results of each quarterly review, and the quarterly monitoring reports should be maintained in the Vehicle's compliance files.
2. Notification Upon Material Changes. If Ironside redeems or admits new investors in the infrastructure strategy vehicles contributing to the Co-Invest commitment — particularly if such changes involve the admission of new benefit plan investors or the redemption or withdrawal of significant non-benefit-plan investors — Ironside should promptly reassess the benefit plan investor percentage. If the percentage approaches 20% (the early-warning threshold established in Section 9.03 of the LP Agreement), Ironside should immediately notify both Calderwood & Harkness LLP and the GP. This early-warning mechanism is designed to provide sufficient lead time to assess the situation and evaluate potential remedial measures before the 25% threshold is breached.
3. Capital Call Date Measurement. At each capital call date, including Capital Call #1 (expected on or about August 15, 2022) and any subsequent capital calls, Ironside should confirm the benefit plan investor percentage as of the date of the capital contribution. Because the 25% Threshold Test is applied at each date on which an equity interest is acquired (i.e., each capital contribution date), this confirmation is required by the Plan Asset Regulation and is essential to maintaining the Vehicle's non-plan-asset status. We recommend that Ironside provide a written confirmation to the GP and to Calderwood & Harkness LLP at least three (3) business days prior to each capital call date.
4. Confirmation for Capital Call #1. Given that Capital Call #1 is expected on August 15, 2022 — approximately three weeks from the date of this memorandum — we specifically recommend that Ironside confirm the benefit plan investor percentage as of that date no later than August 10, 2022. Based on Ironside's representation that no material changes in its investor composition are anticipated between now and the capital call date, we expect this confirmation to be consistent with the current analysis, but the confirmation should be documented for the record.
5. Dormancy Period Monitoring. If the Co-Invest enters a dormancy period (as contemplated under Section 7.04 of the LP Agreement), the monitoring obligation continues so long as the Vehicle remains in existence and holds assets (including unfunded commitments). Even if the Vehicle is dormant and no investment activity is occurring, the plan-asset rules apply whenever benefit plan investors hold equity interests in the entity, and a change in Ironside's investor composition during the dormancy period could affect the ERISA analysis. Ironside should continue its quarterly monitoring function during any dormancy period.
6. Wind-Down and Reactivation. If a wind-down of the Vehicle is elected by Ironside under Section 7.04(c) of the LP Agreement, or if the Vehicle is reactivated following a dormancy period (e.g., in connection with a restructured or renegotiated Cascadia acquisition), the ERISA status of the Vehicle should be re-confirmed at the time of reactivation or wind-down. In the case of a reactivation, a new benefit plan investor certification should be obtained from Ironside, and the analysis in this memorandum should be updated as necessary.
7. Annual Review. In addition to the quarterly monitoring described above, we recommend that a comprehensive annual review of the Vehicle's ERISA status be conducted by Calderwood & Harkness LLP, in consultation with Ironside's compliance team, to ensure that all relevant facts and circumstances continue to support the conclusion that the Vehicle's assets are not plan assets. The annual review should encompass not only the benefit plan investor percentage but also any changes in the applicable legal framework (including any DOL guidance, advisory opinions, or rulemaking that may affect the Plan Asset Regulation) and any structural changes to the Vehicle, Fund IV, or the Cascadia investment that may have ERISA implications.
X. Conclusion
Based on our analysis of the applicable legal framework and the facts and circumstances as of the date of this memorandum, we conclude as follows:
(a) Benefit Plan Investor Percentage Below 25%. Ironside Capital Management LP has represented and certified that benefit plan investors (as defined in the Plan Asset Regulation) hold less than 25% of the equity interests in the relevant Ironside infrastructure strategy vehicles contributing capital to the Co-Invest commitment. Specifically, the aggregate benefit plan investor percentage is approximately 17.3%, which is well below the 25% threshold.
(b) Single-Investor Structure. The Co-Invest is a single-investor co-investment vehicle in which Ironside is the sole limited partner. This structure simplifies the ERISA analysis and eliminates several sources of risk that are present in commingled fund structures.
(c) Transfer Restrictions and Contractual Safeguards. The LP Agreement contains transfer restrictions that prohibit any transfer of limited partnership interests that would cause benefit plan investors to hold 25% or more of the Vehicle's equity interests, as well as monitoring covenants and forced withdrawal provisions that provide the GP with contractual mechanisms to preserve the Vehicle's non-plan-asset status.
(d) Subscription Agreement Representations. Ironside has provided representations in the Subscription Agreement and a separate Certification Letter confirming its benefit plan investor percentage and its ERISA status, and has agreed to ongoing notificat