In addition to encountering regulatory obstacles, U.S. fund managers looking to access E.U. investors must also confront the high cost of establishing E.U. fund operations. In response to this issue, establishing a sub-fund on an umbrella fund platform (Fund Platform) created and run by a third-party management company has recently flourished based on its promise of being a “turnkey solution” to these problems. While the ease and access provided by the Fund Platform structure makes it a very tempting solution relative to others in the E.U., it is a path that is also fraught with potential peril if improperly understood and navigated. To assist U.S. fund managers in overcoming these barriers, this three-part series will weigh the merits of the Fund Platform structure and key considerations for managers to balance when choosing between platform providers. This first article provides an overview of the Fund Platform structure relative to alternative options and describes how fund managers can employ Fund Platforms to overcome obstacles caused by Brexit. The second article in this series will detail the advantages and disadvantages of adopting this fund structure for marketing in the E.U. The third article will explore key considerations for fund managers when selecting a Fund Platform provider and negotiating the corresponding onboarding documents. See “FCA Report Explores the Impact of Platforms, Governing Bodies and Manager Compensation Structures on Fund Competition (Part One of Two)” (Apr. 6, 2017); and “Passports, Platforms and Private Placement: Options for Marketing Funds in Europe in the Post-AIFMD Era” (Apr. 30, 2015). Read full article …

Banco Popular, a Spanish bank, made worldwide headlines following its forced overnight sale to Banco Santander for €1. The sale, which was executed after a decision by the E.U. Single Resolution Board, was widely greeted as a successful application of the new E.U.-wide resolution scheme, with little sign of contagion within the market. The shareholders that had the value of their shares wiped out, along with the holders of €2 billion worth of bonds, are likely to have a different perspective, however. In a guest article, Cadwalader partner Steven Baker and associate Jenna Rennie review the E.U. resolution framework for banks and its application to Banco Popular; examine the viability of legal challenges by investors whose investments were wiped out by the resolution; and discuss how hedge funds can apply lessons from Banco Popular’s collapse to future investing in the European banking sector. For additional insights from Cadwalader attorneys, see “Best Practices for Hedge Fund Managers to Adopt in Anticipation of Enactment of FinCEN AML Rule Proposal” (Aug. 4, 2016); and “Practical Guidance for Hedge Fund Managers on Preparing for and Handling NFA Audits” (Oct. 17, 2014). Read full article …

Weak cybersecurity practices of service providers pose material risks to private fund managers. As connectivity grows, managers run the risk that data entrusted to vendors could be compromised, or that the manager’s own system may be breached through one of its vendors. Consequently, it is critical to understand and manage the risks posed by vendors. See “Surveys Show Cyber Risk Remains High for Investment Advisers and Other Financial Services Firms Despite Preventative Measures” (Jul. 20, 2017); and “Study Reveals Weaknesses in Asset Managers’ Third-Party and Vendor Risk Management Programs” (Mar. 9, 2017). A recent program presented by Advise Technologies discussed ways to assess vendor risk; best practices for managing vendors; uses of due diligence questionnaires; and common errors in vendor management. Advise’s chief regulatory attorney and managing director, Jeanette Turner, moderated the discussion, which featured Jason Elmer, managing director at Duff & Phelps, and Aaron K. Tantleff, partner at Foley & Lardner. This article summarizes their insights. For recent commentary from Advise and Turner, see “A Roadmap of Potential Landmines for Fund Managers to Avoid When Completing the Revised Form ADV” (May 25, 2017); and “The ‘Why’ Behind the Recent Form ADV Amendments: What Information the SEC Will Require and How the Agency Intends to Use It” (May 4, 2017). Read full article …

Hedge fund managers using market research that could potentially influence trading and investment decisions must be mindful of potentially dramatic rule changes following the January 2018 implementation date of the E.U. Markets in Financial Instruments Directive (commonly referred to as “MiFID II”). Key provisions of MiFID II, such as Articles 23 and 24, set forth strict rules concerning conflicts of interest and the receipt of inducements from third parties in connection with trade execution services. See “MiFID II Will Affect Market Structure, Registration and Soft Dollars for Hedge Funds Trading in Europe” (May 19, 2016). U.S. hedge fund managers would be gravely mistaken to assume these MiFID II rules are limited to the E.U., as the regulations have many extraterritorial applications. Further, U.S. regulators have been increasingly focused on research-payment issues, as evidenced by the recent SEC and FINRA enforcement actions and guidance that challenge the assumptions of many market participants about what counts as research and is therefore subject to regulation. All these points came across in a panel discussion at Morgan Lewis’ tenth annual Advanced Topics in Hedge Fund Practices Conference: Manager and Investor Perspectives. This article presents the key takeaways from the panel, which featured Morgan Lewis partners Amy Natterson Kroll, Steven W. Stone and William Yonge. For coverage of other sessions at the conference, see “Ways Fund Managers Can Adjust to Rapidly Changing Regulatory Frameworks in the Middle East and Europe” (Jul. 13, 2017); and “Investor Pressure Drives New Performance Compensation Models and Increased Disclosure Obligations for Managers” (Jun. 29, 2017). Read full article …

Most small and emerging managers expect their headcount to increase in the next three years, according to a new joint study by The Alternative Investment Management Association (AIMA) and prime broker Global Prime Partners. The survey, which polled 135 small and emerging managers and 25 institutional hedge fund allocators, examines the profitability of small and emerging managers, including the average breakeven point. The survey also explores these managers’ methodologies for balancing fees and costs, outsourcing practices and plans for growth. For additional recent insights from AIMA, see “Study Examines How Hedge Funds Are Adapting to a Less Liquid Market, the Need for Better Liquidity Reporting and the Future Role of Hedge Funds As Price-Makers” (Dec. 15, 2016); “AIMA Survey Identifies Key Ways That Managers Align With Investors, Including Alternative Fee Structures, Skin in the Game and Customized Investment Solutions” (Sep. 22, 2016); and “AIMA (Japan) and Eurekahedge Survey of Investors in Japan Reveals Concerns With Hedge Fund Manager Registration Requirements, the Volcker Rule and Success of ‘Abenomics’” (Jun. 23, 2016). Read full article …

Sean J. Hill and Stephanie W. Berdik have joined Kirkland & Ellis as partners in the investment funds group in its Boston office. Hill advises fund managers of all sizes and profiles on a wide range of transactions, with a particular emphasis on fund formation. Berdik provides counsel to fund sponsors on fund structuring, investing, capital raising and regulatory compliance issues. For coverage of other hires at the firm, see “Private Equity Lawyers Join Kirkland & Ellis in New York” (May 19, 2016); “Aaron Schlaphoff Joins Kirkland & Ellis” (Mar. 10, 2016); and “Kirkland Announces Addition of Former SEC Director Norm Champ in New York” (Jan. 28, 2016). Read full article …