Hedge funds rely on prime brokers, swap dealers and other counterparties to meet their long- and short-term financing needs. Trading agreements with those counterparties are therefore common. The coronavirus pandemic has caused extensive disruption and volatility in the financial markets and put significant downward pressure on asset values – all of which may affect a fund manager’s obligations, rights and remedies under its trading agreements. Two timely recent programs delved into the issues that fund managers may face in times of financial stress under counterparty agreements, including margin calls, defaults, termination events, force majeure, valuation issues, exercise of remedies, bankruptcy and prime broker lockups. The programs also offered guidance on preparing for and managing those issues. The first program featured K&L Gates partners Barry B. Cosgrave, Kenneth Holston
, Brian D. Koosed and Anthony R.G. Nolan, along with counsel Robert T. Honeywell. The second, sponsored by Women in Funds and Kleinberg Kaplan, featured Kleinberg Kaplan partners Jared R. Gianatasio and Mary Kuan. This two-part series distills the key takeaways from the two presentations. This first article discusses counterparty trading relationships generally during the coronavirus pandemic, as well as a specific look at how to navigate relations with prime brokers. The second article
explains how to navigate crisis events under swap and repo agreements. See “Steps Fund Managers Should Take Now to Ensure Their Trading of Swap, Repo and Securities Lending Transactions Continues Uninterrupted After January 1, 2019
” (Oct. 18, 2018).