Implications of the Volcker Rule – Managing Hedge Fund Affiliations with Banks

On January 21, 2010, President Obama proposed to limit the size and scope of banking institutions.  The proposal, named the “Volcker Rule” after its key proponent, Chairman of the President’s Economic Recovery Advisory Board and former Federal Reserve Chairman Paul Volcker, would prohibit depository institutions and their bank holding companies (collectively referred to herein as “BHCs”) from owning, investing in, or sponsoring hedge funds, private equity funds or proprietary trading operations.  If enacted into law, the Volcker Rule would require BHCs to divest their investments in hedge funds and would restrict BHC affiliations and transactions with hedge funds.  Accordingly, hedge fund managers could be faced with managing investor divestitures, including their own investments in the funds they manage, as well as managing limitations on their funds affiliating with BHC service providers going forward.  In a guest article, Genna N. Garver, an Associate at Bracewell & Giuliani LLP; Sanford M. Brown, Managing Partner of Bracewell & Giuliani’s Dallas office; Robert L. Clarke, a Senior Partner at Bracewell & Giuliani and former United States Comptroller of the Currency; and Cheri L. Hoff, a Partner at Bracewell & Giuliani, offer a comprehensive analysis of the implications of the Volcker Rule for hedge fund affiliations with banks.  In particular, the authors provide detailed discussions of: fiduciary duties, the withdrawal process and investor relations issues as they relate to withdrawals by BHC investors in hedge funds; the mechanics of and legal considerations involved in divestitures of hedge fund sponsorship interests; and limitations in the proposed Volcker Rule on the ability of hedge funds to affiliate with BHC service providers, such as BHCs providing prime brokerage services.

To read the full article

Continue reading your article with a HFLR subscription.