One of the primary goals when the Dodd-Frank Act introduced central clearing for certain standardized, liquid swaps was to reduce the credit risk between counterparties trading derivatives in the over-the-counter market. For cleared swaps, a regulated clearinghouse is interposed as a counterparty between the two original parties to the transaction, with each party posting margin directly with the clearinghouse. In contrast, uncleared swaps are traded bilaterally, with one party delivering collateral directly to the other party. To mitigate counterparty credit risk with uncleared swaps, parties enter into a credit support annex (CSA) setting forth the collateral arrangements between the parties, such as whether a party is required to deliver collateral and the type of collateral permitted. See “Celent Report Identifies Best Practices for Over-the-Counter Derivatives Collateral Management” (Jul. 29, 2009). In this final installment in our three-part series, we discuss the key considerations for funds when negotiating the CSA. The first article provided background on the various agreements that govern swaps and explained the impact the Dodd-Frank Act has had on trading these instruments. The second article reviewed the most highly negotiated events of default and termination events in swap trading agreements and offered suggestions for negotiating these provisions. Read full article …

Since entering the E.U. on May 1, 2004, Malta has dedicated significant resources to developing its financial services industry. As a member of the E.U., Malta offers investment managers a platform from which they can access the E.U. market – arguably in a more cost-effective manner than Luxembourg and Ireland. While European regulations grow exponentially, the Maltese government and the Malta Financial Services Authority have developed regimes to fit the various business models of investment managers. These range from lighter-regulated fund vehicles to Undertakings for Collective Investment in Transferable Securities structures, as well as the recent introduction of the Notified Alternative Investment Fund – a structure designed to be managed by alternative investment fund managers. To help our subscribers better understand the options Malta offers private investment funds and their investment managers, the Hedge Fund Law Report recently interviewed Kenneth Farrugia, Chairman of FinanceMalta, a public-private initiative that promotes Malta as an international financial center. Farrugia’s guidance is particularly relevant to managers exploring E.U. jurisdictions for future fund launches, as well as managers seeking a platform to distribute into the E.U. For additional insight on the benefits of establishing a fund in Malta, see “European Alternative Funds: The Alternatives” (Jun. 24, 2009). For more on offshore funds, see “Offshore Fund Vehicles: Do U.S. Investment Managers Need Them?” (Feb. 4, 2010). Read full article …

As a result of changing consumer spending habits, numerous retailers – including Sports Authority, Pacific Sunware, Aeropostale and, most recently, American Apparel – have been forced to close down their storefronts or enter into bankruptcy. Others, such as Macy’s, Sears, J.Crew and Toys“R”Us, are also reaching distressed levels. While these retail bankruptcies have negative implications for landlords, tenants and other stakeholders, they may offer great opportunities for claim traders in light of two key provisions under the Bankruptcy Abuse Prevention and Customer Protection Act of 2005 (2005 Amendment), which sought to strengthen vendor-creditor rights under the federal bankruptcy law. In a guest article, Darius J. Goldman and Matthew W. Olsen, partners at Katten, along with associate Jessica P. Chue, outline how a vendor-creditor’s claim may qualify for reclamation or administrative expense priority under the 2005 Amendment. For additional insight from Goldman and Chue, see “What the LSTA’s Revised Delayed Compensation Requirements Mean for Loans Trading on Par/Near Par Documents” (Oct. 27, 2016). For more on claim trading from Goldman, see “How Hedge Fund Claim Traders Can Protect Their Interests in the Visa/MasterCard Litigation” (Jun. 14, 2016); and “What Hedge Fund Claim Traders Need to Know About the Visa/MasterCard Settlement” (Jun. 25, 2015).  Read full article …

A recent panel hosted by EisnerAmper and Kleinberg, Kaplan, Wolff & Cohen discussed the current seeding landscape, focusing on common seed deal structures and terms, the availability of seed capital and common tax considerations in seed deals. For an overview of seeding and seed deal terms, see “Seward & Kissel Private Funds Forum Analyzes Trends in Hedge Fund Seeding Arrangements and Fee Structures (Part One of Two)” (Jul. 23, 2015). The program was moderated by Kleinberg Kaplan partner Eric S. Wagner, and featured his partners Philip S. Gross and Jason P. Grunfeld, as well as Frank L. Napolitani, director in the financial services group at EisnerAmper. This article highlights their insights. For more from Gross, see “Tax Court Decision Upholding ‘Investor Control’ Doctrine May Nullify Tax Benefits for Some Policyholders Investing in Hedge Funds Through Private Placement Life Insurance” (Jul. 23, 2015); and “The Impact of Revenue Ruling 2014-18 on Compensation of Hedge Fund Managers and Employees” (Jun. 19, 2014).  Read full article …

The SEC continues to focus on political contributions by investment advisers seeking to secure government pension investments. It recently charged 10 advisers with violating Rule 206(4)-5 under the Investment Advisers Act of 1940 (Advisers Act) – the so-called “pay to play rule” (Rule). This Rule makes it unlawful for an investment adviser to provide for compensation investment advice to public pension funds for two years after covered employees of that investment adviser contribute to the campaign of officials that can influence the selection of investment advisers by those funds. See “The SEC’s Pay to Play Rule Is Here to Stay: Tips for Hedge Fund Managers to Avoid Liability” (Oct. 8, 2015). This article summarizes the key terms of the settlements and their lessons for private fund advisers. All fund managers should pay heed to these settlements, as they illustrate the SEC’s aggressive pursuit of pay to play violations, including the regulator’s enforcement of minor violations of – and broad interpretation of definitions under – the Rule. See “BakerHostetler Panel Analyzes Shifts in Enforcement Policies and Tactics As Industry Anticipates New Administration and SEC Chair (Part One of Two)” (Jan. 5, 2017); “SEC Starts Year With Pay to Play Penalties” (Jan. 28, 2016); and “Four Pay to Play Traps for Hedge Fund Managers, and How to Avoid Them” (Feb. 5, 2015). Read full article …

The SEC’s Office of Compliance Inspections and Examinations (OCIE) has detailed its plans and goals for 2017. Several of the priorities identified by OCIE – including cybersecurity and anti-money laundering (AML) initiatives – have been priorities in previous years. See “OCIE Outlines Examination Priorities for 2016” (Jan. 14, 2016). At the same time, the 2017 initiatives also illustrate a significant shift with new priorities – notably, enhanced oversight of FINRA in order to protect investors. The release also acknowledges OCIE’s expanded use of data analytics to identify industry practices and registrants with high-risk profiles. OCIE’s priorities provide insight for hedge, private equity and other private fund advisers into the regulator’s priorities and areas of focus in the coming year. This article analyzes OCIE’s release, presenting the key points most relevant to private fund advisers along with interpretations and insights from lawyers and former SEC officials at the forefront of interactions between the financial sector and the regulators. For more on SEC priorities, see “Outgoing SEC Chair Outlines New Model for Enforcement Priorities in 2017 and Beyond” (Jan. 12, 2017); and “What the SEC’s Enforcement Statistics Reveal About the Regulator’s Focus on Hedge Funds and Investment Advisers” (Oct. 20, 2016). Read full article …

Ropes & Gray has broadened its tax practice in New York with the hiring of James Brown, who previously practiced law at the firm for 15 years. Brown advises hedge funds, fund sponsors and regulated investment companies on many types of tax issues and transactions, including tax structuring; mergers and acquisitions; joint ventures; and recapitalizations. For coverage of other recent hires at Ropes & Gray, see “Former SEC Official Joins Ropes & Gray in Washington, D.C.” (Sep. 29, 2016); and “Amanda Persaud Joins Ropes & Gray’s Private Investment Funds Practice” (Aug. 25, 2016). For additional commentary from the firm’s attorneys, see “A Fund Manager’s Guide to Calculating and Reporting Short Sales Under European Regulations” (Jan. 5, 2017); “How Fund Managers Can Mitigate Prime Broker Risk: Legal Considerations When Negotiating Prime Brokerage Agreements (Part Three of Three)” (Dec. 15, 2016); and “Hedge Funds As Direct Lenders: Structures to Manage the U.S. Trade or Business Risk to Foreign Investors (Part Two of Three)” (Sep. 29, 2016).  Read full article …

Proskauer has lured tax attorney Stephen Pevsner to its London office. Pevsner, who joins as a partner, advises private equity sponsors and investors, investment banks and corporations on a range of transactions including mergers and acquisitions, fund formation and the launch of limited partnerships with a focus on investment management. For coverage of another recent addition to the firm’s tax practice, see “Proskauer Welcomes David Miller” (Apr. 21, 2016). For additional insights from Proskauer attorneys, see “Swiss Hedge Fund Marketing Regulations, BEA Forms and Form ADV Updates: An Interview With Proskauer Partner Robert Leonard” (Mar. 5, 2015); and our two-part series on what investment advisers need to know about the SEC’s recent revisions to Form ADV and the recordkeeping rule: “Managed Account Disclosure, Umbrella Registration and Outsourced CCOs” (Nov. 3, 2016); and “Retaining Performance Records and Disclosing Social Media Use, Office Locations and Assets” (Nov. 17, 2016). Read full article …