Even when a principal and PE firm agree that it would be mutually beneficial to spin out an investment strategy, the parties’ competing interests can lead to difficult negotiations to finalize the arrangement. Understandably, the primary source of tension is how the spinout will impact underlying investors – not only in terms of obtaining their consent, but also fundraising from them in the future. Although those challenges can be overcome when a spinout is amicable, they can also flare up – both during and after the spinout – when the situation becomes more contentious. This second article in a three-part series explores some obstacles that legacy firms and principals need to navigate to complete a spinout. The first article explained what PE spinouts are, why parties pursue spinouts and what factors impact the timeline for a spinout. The third article will detail certain economic and operational terms negotiated as part of the ongoing relationship between the two entities, as well as certain post-spinout complications that arise. See “Planting a Seed or Securing an Anchor: Finding Success As an Emerging Manager” (Nov. 14, 2024); and “The New Trend in PE Fund Seed Investments, Unique Deal Features and Several Options for Seed Sources” (Mar. 17, 2020).