May 20, 2008

House Passes Tax Provision Targeting Hedge Fund Fee Arrangements

  • Legislation that would eliminate the ability of US hedge fund managers to defer paying tax on management and performance fees from offshore hedge funds cleared the House of Representatives on May 21, 2008.
  • Disputes over PAYGO in the Senate and a threatened White House veto likely will impede passage of this particular bill. However, the appearance in Congress of multiple legislative proposals targeting offshore fee deferrals, combined with the current media spotlight on hedge fund fee arrangements, increase the likelihood of passage of legislation curtailing offshore fee deferrals.

Conference Board Governance Center Issues Report on Hedge Fund Activism

Conference Board Governance Center’s Research Working Group on Hedge Fund Activism released a report outlining proposed recommendations for corporate directors, executives and investment professionals – various parties that might become involved in an activism campaign mounted by hedge funds.

District Court Denies Motions by Amaranth and Brain Hunter to Dismiss CFTC’s Claims of Attempted Market Manipulation and Attempted Cover Up

  • District Court found that the CFTC had alleged sufficient facts regarding Amaranth’s attempted manipulation of natural gas futures markets – including two sets of “marking the close” trades in early 2006 – to survive motions to dismiss.
  • Court also found that the CFTC had adequately pleaded its cover up case, based on allegations of misrepresentations in a letter from Amaranth to the NYMEX Compliance Department.
  • Court held that it had personal jurisdiction over Hunter based on NYMEX orders he placed from Canada through a broker in New York.

Valuation is Highlighted in Asset Managers’ Committee Report

  • Valuation of assets is perhaps the most salient issue covered in the recently-released report by the Asset Managers’ Committee of the President’s Working Group.
  • According to industry participants, compliance with the report’s recommendations on valuation may become a prerequisite, and even beyond the report, market forces are driving hedge funds to adopt greater transparency and disclosure of asset valuation.