Articles By Topic
By Topic: Consultants
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From Vol. 5 No.13 (Mar. 29, 2012)
Recently-Filed SEC Action Demonstrates the Potential Risks of Insider Trading by Investment Consultants Hired by Private Fund Managers
Private fund managers, including hedge fund managers, often hire investment consultants to help evaluate investments; analyze an investment target company’s operations, management and financial condition; offer strategic and structuring advice; and provide related services. To provide value, such consultants typically request and receive deep access to confidential target company data. The company typically grants such access under the terms of a confidentiality agreement between the company and the consultant, or among the company, the consultant and the private fund manager. Typically, the primary purpose of such confidentiality agreements is to prevent confidential company information from reaching a competitor or from being used by the consultant on behalf of a competitor. A secondary purpose of such agreements is to prevent insider trading by “temporary insiders” or their tippees, or Regulation FD violations by the company. However, an enforcement action recently filed by the SEC suggests that confidentiality agreements, standing alone, may not be sufficient to prohibit insider trading by investment consultants. While the private fund manager involved was not charged, the charges against the manager’s consultant reflect adversely on the manager. The charges suggest, for example, that the manager did not take adequate precautions to control the conduct of the consultant. Given the radioactivity of insider trading charges in the current enforcement environment, risk aversion with respect to insider trading is prudent business. This article discusses the SEC’s factual and legal allegations in the matter, as well as the consultant’s proposed settlement agreement. This article also details four steps that private fund managers may take to prevent insider trading by their investment consultants.
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From Vol. 4 No.11 (Apr. 1, 2011)
Survey by SEI and Greenwich Associates Identifies the Primary Decision Factors and Concerns of Institutional Investors When Investing in Hedge Funds
A survey of 97 institutional investors and 14 investment consultants conducted by SEI Knowledge Partnership in collaboration with Greenwich Associates last October, and released earlier this year, identifies the hierarchy of considerations and concerns of institutional investors when investing in hedge funds. One notable finding of the survey – especially for a publication, like the HFLR, focused on regulation – is the view of most institutional investors with respect to regulation. That view is discussed in this article. In addition, this article discusses the survey’s findings on the following topics: statistics with respect to hedge fund returns, assets under management, launches and liquidations during the last three years; plans with respect to hedge fund allocations during 2011; objectives of institutional investors when investing in hedge funds; most significant challenges in hedge fund investing; experience with and perceptions of liquidity; the 16 factors that investors consider most important when selecting among managers; four key takeaways for hedge fund managers from the survey findings; breakdown of hedge fund allocations by institutional investor type; trends with respect to fees; the role of consultants; the success rate of negotiations on liquidity terms; and trends with respect to the resources dedicated by institutional investors and consultants to hedge fund due diligence and monitoring.
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From Vol. 3 No.4 (Jan. 27, 2010)
Hedge Fund Research and Advisory Firm Aksia LLC Sues Two Former Employees for Misappropriation and Destruction of Confidential Business Information
Aksia LLC is a hedge fund advisory business that provides strategy and portfolio-level research and advisory services to institutional investors that invest in hedge funds. Defendants Sarah Cole and Corissa Mastropieri worked for Aksia’s “Americas advisory services team” servicing institutional clients and developing new business. Aksia’s complaint alleges that, in connection with the defendants’ move to work for an Aksia competitor in London, the defendants solicited each other to leave Aksia, stole confidential business information and other company property, tampered with company records and interfered with Aksia’s relations with its clients. The complaint illustrates how Aksia used forensic investigations of the defendants’ computers to document the defendants’ alleged preparation for their move to an Aksia competitor. In addition to money damages, Aksia seeks, among other things, to enjoin the defendants from using the confidential information they allegedly took and from working for that competitor. This article summarizes Aksia’s allegations and the relief it is seeking.
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From Vol. 2 No.30 (Jul. 29, 2009)
Second Circuit Holds that Recommendations by Hennessee Group that Clients Invest in Bayou Hedge Funds Did Not Violate Federal Securities Laws
On July 14, 2009, the Second Circuit affirmed the dismissal of South Cherry Street, LLC’s complaint which alleged that hedge fund consultant Hennessee Group LLC (i) violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and (ii) breached an oral contract to conduct suitable due diligence by recommending that its clients invest in the “Bayou” group of funds, which turned out to be part of a Ponzi scheme. The Second Circuit determined that the alleged oral contract was unenforceable by reason of the New York statute of frauds because it could not be fully performed within one year. It also determined that South Cherry failed to allege sufficient facts to show that defendants acted with the requisite intent to sustain a claim for securities fraud under Section 10(b) of the Exchange Act. We summarize the court’s findings and reasoning and its potential impact on hedge fund investors and the consultants who assist them in selecting hedge fund investments.
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