Traditional distinctions between developed and emerging markets – the sizes of their economies and markets, their government and corporate policies and even their growth rates – have blurred significantly over the past decade, resulting in higher correlations between developed and emerging market equities. Thus, global investors seeking growth and diversification must now look to the “emerging” emerging markets, or frontier markets. Although frontier markets offer opportunities, investing in them involves various risks: political risk (something increasingly prevalent in developed markets), macroeconomic risk (e.g., inflation risk, currency risk, etc.) and microeconomic risk (e.g., liquidity, custody and settlement risks). These markets are also harder to hedge, as investors often cannot hedge their currency exposure or short sell securities. For additional coverage of hedging currency risk, see “Local Currency Hedge Funds Expand Marketing and Investment Opportunities, but Involve Currency Hedging and Other Challenges” (Jan. 6, 2010). In a guest article, Marko Dimitrijević and Timothy Mistele, chairman and senior advisor, respectively, at private investment group Volta Global, and Bilzin Sumberg Baena Price & Axelrod partner Joshua M. Stone provide an overview of frontier markets, as well as analysis about the risks and considerations for investors seeking to invest in those markets. For more on navigating risks related to emerging markets, see “How Private Fund Managers Can Manage FCPA Risks When Investing in Emerging Markets” (Jan. 10, 2013). Read full article …

Over the past decade, several factors have caused U.S. private fund advisers to become considerably more aware that many countries have laws restricting a foreign adviser’s ability to market to investors in those jurisdictions. See “K&L Gates Partners Offer Practical Guidance for Hedge Fund Managers on Raising Capital in Australia, the Middle East and Asia” (Oct. 30, 2014). Canada is one such country that has long since maintained a comprehensive regulatory framework applicable to both Canadian-based and foreign asset managers seeking to raise capital from local investors. While non-resident advisers generally view compliance with Canada’s rules as manageable, they must still contend with a number of regulatory hurdles. In this two-part series, the Hedge Fund Law Report has identified the key registration issues, as well as ongoing regulatory and filing obligations, that may apply to non-Canadian managers seeking to raise capital in Canada. This first installment discusses two registration requirements that all private fund advisers should consider prior to marketing their funds to Canadian investors. The second article will explore a third registration requirement triggered in the managed account context, as well as a variety of additional rules U.S. managers may need to comply with when marketing their funds. For additional insight about Canada’s regulation of the fund industry, see “AIMA Canada Handbook Provides Roadmap for Hedge Fund Managers Doing Business in Canada” (Sep. 13, 2012). Read full article …

The British Virgin Islands (BVI) have become an increasingly attractive and competitive jurisdiction for launching, registering and operating investment funds over the last several decades. The BVI’s regulatory framework promotes flexibility, ease and speed of registration, along with offering various types of funds that managers can launch. Today, the BVI ranks as a leading offshore funds jurisdiction – second only to the Cayman Islands in popularity – in part due to the long-term benefits of the Mutual Funds Act of 1996, which helped pave the way for three general classes of BVI funds: private, professional and public. A fourth category of available BVI funds, known as “incubator” funds, is particularly attractive to emerging managers seeking to quickly launch a vehicle to begin establishing a track record. Fund managers contemplating the use of BVI vehicles must have a highly nuanced grasp of each structure's advantages and limitations. All these themes came across in a recent Hedge Fund Association (HFA) briefing featuring Alicia Green, marketing manager of BVI Finance, and Martin Litwak, founder of Litwak and Partners. This article summarizes the key takeaways from their discussion. For additional insight on how BVI law applies to private funds, see “What Does the Introduction of a Lighter Touch Fund Manager Regulatory Option in the British Virgin Islands Mean for Hedge Fund Managers?” (Feb. 14, 2013); and “Use by Private Fund Managers of the British Virgin Islands for Private Equity Fund Formation and Private Equity Investments” (Nov. 29, 2012). For coverage of another recent HFA event, see “Post-Brexit Environment Requires Fund Managers to Combine Granular Knowledge of Europe’s Varied Funds Markets With Appropriately Targeted Marketing Campaigns” (Mar. 2, 2017). Read full article …

In March 2015, an unnamed whistleblower filed a qui tam action in New York State Supreme Court under the state’s False Claims Act against Harbert Management Corporation, Harbinger Capital Partners Offshore Manager LLC and others. The suit asserted that those entities, as well as several affiliated entities and individuals, had failed to report and pay New York State income tax on millions of dollars of performance fee income derived from their fund management activities in New York. For more on the tax treatment of performance fee income, see “Are Compensatory Options on Offshore Hedge Fund Shares Subject to the Anti-Deferral Provisions of Internal Revenue Code Section 457A?” (Jun. 13, 2014). Several parties to the action recently entered into a Stipulation and Settlement Agreement (Stipulation) pursuant to which the respondents have agreed to pay over $40 million in the aggregate, including an award of more than $8.8 million to the whistleblower. The settlement is the largest such recovery in New York and serves as an important reminder that fund managers must comply with the tax regime of each jurisdiction in which they operate. This article analyzes the terms of the Stipulation and its potential ramifications on the hedge fund industry. For coverage of actions involving Harbinger, see “Settlement by Harbinger’s Former COO Calls Into Question the Utility for Hedge Fund Manager Executives of Indemnification Provisions in Fund Documents and D&O Insurance Policies” (Aug. 1, 2014); “Important Implications and Recommendations for Hedge Fund Managers in the Aftermath of the SEC’s Settlement With Philip A. Falcone and Harbinger Entities” (Aug. 22, 2013); and “SEC Charges Philip A. Falcone, Harbinger Capital Partners and Related Entities and Individuals With Misappropriation of Client Assets, Granting of Preferential Redemptions and Market Manipulation” (Jun. 28, 2012). Read full article …

Barclays Capital Solutions Group recently surveyed nearly 350 hedge fund allocators to probe their perspectives on, and expectations for, the hedge fund industry. The survey report synthesizes the responses received from survey participants, along with other relevant industry data. This article, the first in a two-part series, offers perspectives on the current state of the hedge fund industry, including a more nuanced view of recent underperformance and a glimpse into investors’ allocation plans and preferences. The second article will detail industry trends identified by Barclays as part of its research, including current interest in smaller managers and non-traditional products, as well as the recent evolution of fees and investment terms. For coverage of Barclays’ 2016 survey report, see “Barclays Survey Suggests Hedge Funds Fell Short of Investor Expectations Due to Industry Growth, Position Crowding and Macro Conditions” (Aug. 25, 2016). For coverage of another survey from Barclays, see “Options for Hedge Fund Managers in Alternative Mutual Fund Space” (Apr. 11, 2014). Read full article …

Dechert has hired Rob Bradshaw as a global finance partner based in its London office. Bradshaw advises lenders and borrowers on highly complex financings, refinancings and restructurings, while also working extensively with private equity sponsors and their portfolio companies. For additional insight from Dechert partners, see “How Cross-Border European Fund Managers Can Prepare for Brexit’s Momentous Regulatory Effect” (Apr. 6, 2017). Read full article …