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    May 8, 2025

Drafting Effective Key Person Provisions for Hedge Funds (Part One of Two)

Although hedge funds vary widely in terms of size, profile and investment strategy, it is not uncommon for a single individual at a fund to wield vast authority and oversee most or all trading and investments. Often, that same person – who may be the founder, managing partner or head portfolio manager, for example – conducts outreach, brings new investors on board, builds relationships and commands the trust and respect of investors, who may not want to grant oversight of their money to anyone else. If someone wielding so much responsibility were to die suddenly, fall chronically ill, quit, retire or otherwise cease to be part of the fund’s operations, the consequences could be dramatic. Some investors may seek to redeem their shares as fast as possible and exit the fund, while others may wish to stay on under new leadership, necessitating careful succession planning. Thus, it is imperative for hedge funds to have the right key person provisions in their governing documents. This article, the first in a two-part series, explains what key person provisions are and in which documents they typically appear; the terms of such provisions, including which personnel they cover, what scenarios could trigger them and investor rights if they are triggered; why they are vitally important in the SEC’s eyes; and how they relate to succession planning. The second article will delve into the operational logistics of what happens when a key person event occurs. See our two-part series on succession planning: “A Blueprint for Hedge Fund Founders Seeking to Pass Along the Firm to the Next Generation of Leaders” (Nov. 21, 2013); and “Selling a Hedge Fund Founder’s Interest to an Outside Investor” (Jan. 16, 2014).

Navigating EDGAR Next

Private fund managers use the SEC’s Electronic Data Gathering, Analysis and Retrieval system (EDGAR) for filing beneficial ownership and insider reports required by Sections 13 and 16 of the Securities Exchange Act of 1934. On September 27, 2024, the SEC adopted rule and form amendments overhauling the way filers use EDGAR. The changes are primarily codified in revisions to Rules 10 and 11 of Regulation S‑T, Form ID and Volume 1 of the EDGAR Filer Manual. The revised system – EDGAR Next – is intended to enhance security, improve filers’ ability to manage their EDGAR accounts and modernize connections to the system. The SEC is also providing several optional application programming interfaces that will enable filers to automate certain functions on EDGAR Next, which went live on March 24, 2025. This article discusses the new filing requirements. See “Shorter Filing Deadlines for Schedules 13D and 13G and Other Beneficial Ownership Rule Changes” (Jan. 4, 2024).

Survey Finds Investment Managers Increasing Use of Alternative Data

“Alternative data (alt data) has become a mainstream source of insights for portfolio managers and analysts worldwide, with 100% of respondents confirming its integration into their investment processes,” according to a new survey by alt data platform BattleFin and its newly acquired alt data analytics platform, Exabel. As alt data becomes part of mainstream investing, investment professionals, including those at hedge funds, are seeking new data sources and enhanced analytical capabilities. BattleFin’s survey assessed demand for alt data, data sources, key challenges associated with using alt data, resources, budgeting and management commitment to alt data. This article details the key findings from the BattleFin survey. See “Driven by AI, Private Funds’ Use of Alternative Data Continues to Grow, Survey Finds” (Feb. 15, 2024).

Acting SEC and CFTC Chairs Emphasize Getting “Back to the Basics”

In remarks made in March 2025, then-acting SEC Chair Mark T. Uyeda and acting CFTC Chair Caroline D. Pham both said their agencies were getting “back to the basics.” Uyeda, who spoke at the Investment Company Institute’s 2025 Investment Management Conference, devoted most of his remarks to the SEC’s rulemaking process, expressing an intention to slow the pace of rulemaking and potentially revisit new and pending regulations. Pham, in the keynote address at BOCA50 – this year’s International Futures Industry Conference – touted the CFTC’s new self-reporting, remediation and cooperation regime, as well as an anticipated advisory that could result in a lighter enforcement touch, especially with regard to the size of penalties and compliance issues that do not result in harm to market participants. She also discussed efforts to make the CFTC more efficient and transparent. This article distills the key takeaways from their remarks. See “SEC and CFTC 2024 Enforcement Results: Record-High Financial Remedies Across Fewer Actions” (Jan. 30, 2025); and “What Hedge Fund Managers May Expect From the SEC in 2025” (Jan. 16, 2025).

Common Mistakes to Avoid When Launching a Hedge Fund

When a manager launches a new hedge fund and seeks to attract investor capital, certain mistakes are all too common with respect to selecting a domicile, registering, drafting fund documents, structuring the hedge fund for tax purposes, delegating key responsibilities among key personnel and seeking outside assistance and counsel to assist with multifarious legal and regulatory compliance matters. These mistakes can be fatal to a fledgling hedge fund – but they are avoidable. A keen awareness of how to identify and overcome the challenges that confront early stage and emerging fund managers is essential. All these points were discussed in a panel, “Starting Your Hedge Fund: Tips for Doing It Right,” organized by the Manhattan Alternative Investment Network. The speakers on the panel were Robert Akeson, managing director at Riverside Management Group; Robert Ansell, director of business development at Opus Fund Services; James Catalano, partner at Citrin Cooperman; Bruce Frumerman, president and CEO of Frumerman & Nemeth; Christopher Mendez, senior counsel at Crowell & Moring; Jack Seibald, co-head of prime brokerage at Marex; and Edward Tedeschi, president and COO of PB Investment Partners. This article summarizes key takeaways from the discussion. See “Establishing a Hedge Fund Manager in Seventeen Steps” (Aug. 27, 2015).

K&L Gates Bolsters Broker-Dealer Practice With Addition of New York Partner

Derek N. Lacarrubba has joined K&L Gates as a partner in its asset management and investment funds practice. His experience includes advising broker-dealers, hedge funds and other financial institutions on a spectrum of regulatory issues, with a focus on equity and futures trading practices; alternative trading system regulation; and best execution practices. He also counsels clients on anti-money laundering (AML) and sanctions regulations. See our two-part series on FinCEN’s final AML rules for investment advisers: “Parsing FinCEN’s Final AML Rules” (Nov. 7, 2024); and “Understanding the Implications for Hedge Fund Managers” (Nov. 21, 2024).

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Women to Watch: Contributions, Achievements and Observations of Outstanding Female Professionals

To mark International Women’s Day, women editors and reporters at ION Analytics interviewed outstanding women in the industries and jurisdictions we cover. In this part, Law Report Group editors Jill Abitbol, Robin L. Barton and Megan Zwiebel profile notable women in data privacy, cybersecurity, private funds and anti-corruption law, including Anne-Gabrielle Haie, Jessica Lee, Micaela McMurrough, Laura Perkins, Amanda Raad, Madelyn Calabrese, Ranah Esmaili and Genna Garver. Enjoy reading their inspiring remarks here.