The Coronavirus Pandemic: Beware of Investment-Related Risks

The ongoing coronavirus pandemic has affected practically every aspect of a hedge fund manager’s operations, and investments are no exception. For example, given the volatility of the stock markets, fund managers may be tempted to deviate from their disclosed investment strategies to pursue more defensive strategies. Telling investors the manager is pursuing one strategy and then actually pursuing a different one, however, may constitute style drift and could result in an enforcement action or investor lawsuit. In addition, the current crisis may increase the risk of insider trading, as noted by Stephanie Avakian and Steven Peikin, Co‑Directors of the SEC’s Division of Enforcement, in a recent statement on market integrity. Other investment-related risks that may be triggered by the pandemic include liquidity issues caused by an increase in redemption requests; challenges with calculating net asset value in the current climate; and restrictions on short selling in certain jurisdictions. This article comprises a list of key articles from the Hedge Fund Law Report’s archives to help fund managers identify, mitigate and avoid those risks.

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