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    Dec. 10, 2015

Hedge Fund GCs and CCOs Face Risks in Changing E.U. Marketing Environment (Part One of Two)

Hedge funds looking to market in Europe are faced with an increasingly complex regulatory environment – encompassing the Alternative Investment Fund Managers Directive (AIFMD), the Markets in Financial Instruments Directive, as well as a panoply of local regulations.  Hedge fund general counsels (GCs) and chief compliance officers (CCOs) must adapt to these changes and ensure that their firms appropriately solicit and engage with investors.  On November 17, 2015, the Hedge Fund Law Report and Dechert LLP co-sponsored a program, “The Evolving Role of GCs and CCOs in Marketing and Investor Management in Europe,” which considered issues faced by GCs and CCOs relating to private placements, reverse solicitation, the E.U. marketing “passport,” regulatory changes, UCITS funds and investor relations.  Moderated by William V. de Cordova, Editor-in-Chief of the HFLR, the discussion featured Jeffrey Bronheim, GC of Cheyne Capital Management (UK) LLP; Philip Niel, GC and CCO of Egerton Capital (UK) LLP; and Dechert partners Karen L. Anderberg and Gus Black.  This article, the first in a two-part series, summarizes the key takeaways from the panel discussion with respect to marketing funds under the AIFMD and reverse solicitation.  The second article will address topics including the extension of the E.U. marketing passport, potential regulatory changes, marketing alternative mutual funds and investor relations.  For more from the panelists, see “What the Evolving European Marketing Environment Means for Hedge Fund GCs and CCOs,” Hedge Fund Law Report, Vol. 8, No. 44 (Nov. 12, 2015).

How Hedge Fund Managers Can Meet the Cybersecurity Challenge:  A Plan for Building a Cyber-Compliance Program (Part Two of Two)

Cybersecurity is a rapidly evolving threat without a total solution.  Despite the abundance of principles-based guidance provided to the compliance community from regulators, interpreting those principles and turning them into actionable items remains a formidable task.  Nevertheless, hedge fund managers and other investment advisers have a fiduciary duty to devote best efforts to mitigating cyber risk by building an appropriate risk-management solution.  In a guest article, the second in a two-part series, Moshe Luchins, the deputy general counsel and compliance officer of Zweig-DiMenna Associates LLC, provides hedge fund compliance professionals with a practical blueprint to build a cyber-compliance program.  The first article supplied hedge fund managers with a snapshot of regulatory expectations in the area of cybersecurity.  For more on cybersecurity, see “RCA Panel Outlines Keys for Hedge Fund Managers to Implement a Comprehensive Cybersecurity Program,” Hedge Fund Law Report, Vol. 8, No. 24 (Jun. 18, 2015); and “SEC Guidance Update Suggests a Three-Step Framework for Investment Manager Cybersecurity Programs,” Hedge Fund Law Report, Vol. 8, No. 18 (May 7, 2015).

Liquidity, Transparency and Performance Considerations for Hedge Fund Managers Launching UCITS Funds (Part One of Two)

Since the advent of the financial crisis, demand for liquid alternative products – which offer hedge fund strategies in a regulated structure – has risen, reflecting the wider investment community’s desire for more regulated and transparent funds.  Accordingly, assets under management in the liquid alternatives space have multiplied five-fold since 2008.  In Europe, liquid alternative vehicles take the form of Undertakings for Collective Investments in Transferable Securities (UCITS) funds, which are subject to certain liquidity, transparency and diversification requirements, as well as leverage restrictions, under the pan-European UCITS Directive.  At the recent Liquid Alternative Strategies Global conference held in London, speakers discussed the rise of alternative UCITS funds as a global investment solution.  This article, the first in a two-part series, examines what drives the recent growth in alternative UCITS funds and several key factors that managers should consider when assessing their ability to capitalize on the demand for UCITS products.  The second article will address distribution of UCITS products and operational due diligence.  For more on UCITS, see “UCITS: An Opportunity for Hedge Fund Managers,” Hedge Fund Law Report, Vol. 2, No. 27 (Jul. 8, 2009).  For more on liquid alternative structures, see “The First Steps to Take When Joining the Rush to Offer Registered Liquid Alternative Funds,” Hedge Fund Law Report, Vol. 7, No. 42 (Nov. 6, 2014); and “Citi Prime Finance Report Describes the Competition among Traditional, Hedge and Private Equity Fund Managers for $1.3 Trillion in Liquid Alternative Assets (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 22 (May 30, 2013).

Advise Technologies Program Provides Non-E.U. Hedge Fund Managers with Roadmap for Reporting Under E.U. Private Placement Regimes (Part Two of Two)

Concerns about disparate registration and reporting requirements imposed by the national private placement regimes (NPPRs) that have arisen since the Alternative Investment Fund Managers Directive (AIFMD) became effective have caused many non-E.U. hedge fund managers to hesitate when considering marketing their funds into the E.U.  However, as marketing under the NPPRs has evolved in the two years since the AIFMD took effect, much has been learned about how each jurisdiction’s regulators intends to treat non-E.U. fund managers.  A recent program presented by Advise Technologies sought to dispel some of the concerns of non-E.U. fund managers with respect to registration and reporting requirements and offered insights into how NPPRs function in practice.  The program, “Non-E.U. Fund Managers: Why AIFMD Is Easier Than You Think,” was moderated by William V. de Cordova, Editor-in-Chief of the Hedge Fund Law Report, and featured Bill Prew, Founder and CEO of INDOS Financial; Tim Slotover, Founder and Director of flexGC; Jeanette Turner, Managing Director and General Counsel of Advise Technologies; and Arne Zeidler, Founder and Managing Director of Zeidler Legal Services.  This article, the second in a two-part series, summarizes the key takeaways from the program with respect to the regulatory reporting requirements and the evolution of marketing under the NPPRs.  The first article addressed the initial entry requirements, pre-investment disclosures and annual reporting requirements under the NPPRs.  For more from Turner on marketing and reporting under the AIFMD, see “Seven Tips and Lessons Learned from January 2015 AIFMD Filers,” Hedge Fund Law Report, Vol. 8, No. 6 (Feb. 12, 2015); and “Key Pain Points in AIFMD Annex IV Reporting and Proven Strategies for Surmounting Them,” Hedge Fund Law Report, Vol. 7, No. 44 (Nov. 20, 2014).

Repeat Custody Rule Offenders Face Severe SEC Sanctions

On November 19, 2015, the SEC announced that it had settled enforcement proceedings against registered investment adviser Sands Brothers Asset Management, LLC (SBAM) and its principals: Martin Sands, Steven Sands and Christopher Kelly, in connection with SBAM’s repeated violations of SEC Rule 206(4)-2, commonly referred to as the “custody rule.” The SEC alleged that, despite previously settling with the SEC for custody rule infractions, the respondents continued to violate the custody rule.  In the press release announcing the settlement, Andrew M. Calamari, the Director of the SEC’s New York office, cautioned, “There is no place for recidivism in the securities markets.  The Sands brothers missed their opportunity to right a previous wrong and instead merely repeated their custody rule violations, so now they face more severe consequences.”  This article summarizes the SEC’s allegations; the current and prior violations; and the details of those consequences, which include stiff penalties, suspensions and potential daily fines for custody rule violations.  For more on the custody rule, see “How Does the Custody Rule Apply to Special Purpose Vehicles Used by Private Equity Funds to Purchase, and Escrow Accounts Used to Sell, Portfolio Companies?,” Hedge Fund Law Report, Vol. 7, No. 28 (Jul. 24, 2014); “Implications for Private Fund Managers of the SEC’s Recent Custody Rule Guidance and Relief Relating to ‘Privately Offered Securities’,” Hedge Fund Law Report, Vol. 6, No. 32 (Aug. 15, 2013); and “How Does the SEC Approach Custody Issues in the Course of Examinations of Hedge Fund Managers?,” Hedge Fund Law Report, Vol. 5, No. 18 (May 3, 2012).

PLI “Hot Topics” Panel Addresses Operational Due Diligence and Registered Alternative Funds

A recent panel discussion at The Practising Law Institute’s Hedge Fund Management 2015 program, “Hot Topics for Hedge Fund Managers,” offered insight on current investor due diligence practices and a look at the challenges of starting a registered alternative fund, in addition to providing the perspective of an SEC counsel on cybersecurity and a summary of significant developments in swaps regulation.  Nora M. Jordan, a partner at Davis Polk & Wardwell, moderated the discussion, which featured Jessica A. Davis, chief operating officer and general counsel of investment adviser Lodge Hill Capital, LLC; Jennifer W. Han, associate general counsel at the Managed Funds Association; and Aaron Schlaphoff, an attorney fellow in the Rulemaking Office of the SEC Division of Investment Management.  This article summarizes the key takeaways from the program with respect to operational due diligence and registered alternative funds.  For additional coverage of PLI’s Hedge Fund Management 2015 program, see “PLI ‘Hot Topics’ Panel Addresses Cybersecurity and Swaps Regulation,” Hedge Fund Law Report, Vol. 8, No. 43 (Nov. 5, 2015); and “SEC’s Rozenblit Discusses Operations and Priorities of the Private Funds Unit,” Hedge Fund Law Report, Vol. 8, No. 37 (Sep. 24, 2015).

Morgan Lewis Adds Simon Currie to Its London Investment Management Practice

Financial sector and regulatory attorney Simon Currie recently joined Morgan Lewis’ London investment management team as a partner.  For insight from Currie, see “Navigating the Patchwork of National Private Placement Regimes: A Roadmap for Marketing in Europe by Non-E.U. Hedge Fund Managers That Are Not Authorized Under the AIFMD,” Hedge Fund Law Report, Vol. 7, No. 28 (Jul. 24, 2014).  Currie advises on the structuring, establishment and operation of segregated accounts and segregated account investment vehicles and other investment funds, including U.K. domestic and offshore investment funds, as well as investment trusts.  For insight from the firm, see “How to Structure a Singapore-Based Hedge Fund Manager (Part One of Two),” Hedge Fund Law Report, Vol. 8, No. 28 (Jul. 16, 2015); and “Licensing and International Regulation of Singapore-Based Hedge Fund Managers (Part Two of Two),” Hedge Fund Law Report, Vol. 8, No. 29 (Jul. 23, 2015).

Simcha David Joins EisnerAmper

EisnerAmper recently welcomed attorney and accountant Simcha B. David to the firm as a partner.  David joins the tax practice and is a member of the firm’s financial services group.  He advises on all aspects of tax planning and compliance for financial services firms and their related entities, including hedge funds and private equity funds.  For insight from EisnerAmper, see “Accounting for Uncertain Income Tax Positions for Investment Funds,” Hedge Fund Law Report, Vol. 4, No. 2 (Jan. 14, 2011); and “Legal and Accounting Considerations in Connection with Hedge Fund General Redemption Provisions, Lock-Up Periods, Side Pockets, Gates, Redemption Suspensions and Special Purpose Vehicles,” Hedge Fund Law Report, Vol. 3, No. 43 (Nov. 5, 2010).

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