Dec. 21, 2017

Electronic Signatures: Implementation Considerations for Fund Managers (Part One of Two)

Electronic signatures have become a popular method to efficiently execute documents, and the U.S. laws governing them are more than 15 years old. Fund managers are increasingly relying on electronic signatures for agreements with third-party vendors, as well as in certain operating and offering documents, such as subscription agreements. Nevertheless, understanding when and how an electronic signature works in the contracting process and navigating the variety of available technologies remain perplexing given that fund managers, along with the rest of the financial services sector, are governed by a complex regulatory backdrop. In this guest article, the first part of a two-part series on electronic signatures, Julia B. Jacobson and Madeline A. Lally, partner and associate, respectively, at K&L Gates, discuss the legal landscape for electronic signatures, how an electronic signature differs from a digital one and the legal risks associated with the use of electronic signatures. The second article will include practical advice from other lawyers and consultants on how to implement an e‑signatures program while avoiding risks and how to vet and use vendors that provide these services. For additional insight from K&L Gates attorneys, see our two-part series on state and local pay to play laws: “State and Local Lobbying; Pay to Play; and Gifts and Entertainment Limitations” (Mar. 23, 2017); and “Public Disclosure Risks Associated With Accepting State and Public Pensions As Investors and How to Mitigate Them” (Mar. 30, 2017). See also “SEC Tackles Internal Cybersecurity Issues While Sharpening Cybersecurity Enforcement Focus” (Oct. 5, 2017); and “Practical Steps That Commodity-Focused Hedge Fund Managers Can Take to Combat Cybersecurity Threats” (Mar. 10, 2016).

Developing a 2018 Compliance Budget: How Investment Advisers Can Make the Most of Limited Resources

In the face of ever-increasing regulatory demands and a challenging fee environment, compliance departments are frequently being asked to do more with less. A recent presentation by ACA Compliance Group (ACA) offered timely insight on how chief compliance officers and compliance personnel can approach the compliance-budgeting process, obtain buy-in from senior management, avoid common pitfalls and stretch limited resources. The program featured Lee Ann Wilson, ACA senior principal consultant; Sean McKeveny, ACA consultant; and Kara J. Brown, counsel at Sidley Austin. This article highlights the portions of the presentation most relevant to fund manager compliance staff, particularly those who may be currently immersed in the process of seeking approval for their budgets. For additional ACA insights on budgeting, see “ACA 2016 Compliance Survey Covers SEC Exams; Compliance Staffing and Budgeting; Annual and Ongoing Compliance Reviews; and AML/Sanctions Compliance (Part One of Two)” (Jan. 19, 2017).

Former Senior SEC Attorneys Offer Insight on the Current Regulatory Climate, Adviser Examinations and the Enforcement Referral Process (Part Two of Two)

President Trump’s executive order on “core principles” enumerated broad regulatory fundamentals pursuant to which the Department of the Treasury provided recommendations on regulation within the investment management industry. See “Reading the Regulatory Tea Leaves: Recent White House and Congressional Action and Insights From SIFMA and FINRA Conferences” (Jul. 20, 2017). While the SEC may follow these recommendations, it is likely that fund managers will continue to face increased examinations and the risk of enforcement action from the agency. These issues, along with practices fund managers can adopt to potentially avoid having routine SEC examinations turn into enforcement actions, were among those discussed at a recent program hosted by Brian T. Davis and Dimitri G. Mastrocola, partners at international recruiting firm Major, Lindsey & Africa (MLA). Moderated by Simpson Thacher partner Olga Gutman, the program featured partners David W. Blass, former Chief Counsel and Associate Director in the SEC Division of Trading and Markets, and Michael J. Osnato, Jr., former Chief of the Complex Financial Instruments Unit of the SEC Division of Enforcement. This two-part series summarizes the panelists’ insights garnered from their experience at the SEC. This second article explores the SEC’s regulatory agenda, and the examination and enforcement referral process. The first article discussed the “zero-tolerance” approach under former Chair Mary Jo White, the direction Chair Jay Clayton intends to take the Commission and the SEC’s enforcement agenda. For more from Simpson Thacher, see “Regulators From the SEC, CFTC and New York Attorney General’s Office Reveal Top Hedge Fund Enforcement Priorities (Part Two of Four)” (Dec. 18, 2014). For coverage of a prior program hosted by MLA, see our two-part series on SEC examinations: “What Hedge Fund Managers Need to Know” (Jun. 16, 2016); and “Fees, Conflicts, Investment Allocations and Other Hot Topics” (Jun. 30, 2016).

Ernst & Young’s 2017 Global Hedge Fund and Investor Survey Examines Hedge Fund Operations; Talent Acquisition and Retention; and Steps Hedge Funds Can Take to Remain Competitive (Part Two of Two)

Ernst & Young (EY) recently released the results of its 11th annual Global Hedge Fund and Investor Survey. Among other topics, the survey explored issues affecting operational efficiency, including headcount, fees, expense ratios, expense pass-throughs and passively managed funds; and the challenges of attracting, developing and retaining talent. The survey also explored steps fund managers can take to stay competitive in the evolving market. This article, the second in a two-part series, describes the survey’s key findings in these areas. The first article detailed the survey’s results concerning fund managers’ strategic priorities; investor allocation plans; offerings of non-traditional products by hedge fund managers; evolution of hedge funds’ front-office and investment functions; and key industry risks. For coverage of prior EY surveys, see “Hedge Fund Growth Priorities, Fee and Expense Climate, Prime Brokerage and Operational Matters” (Dec. 3, 2015); “Growth Areas for Hedge Fund Managers, Related Costs and Challenges, Operating Expenses and Cybersecurity” (Jan. 15, 2015); and “Trends in Asset Sourcing, Alternative Mutual Funds, Customized Solutions, Staffing, Administrator Shadowing, Expense Pass-Throughs and Outsourcing” (Dec. 5, 2013).

Kirkland & Ellis Expands Investment Funds Practice in New York

Kirkland & Ellis has strengthened its funds practice in New York with the hiring of two partners: Erica Berthou and Jordan Murray. Both attorneys advise sponsors of and investors in private investment funds and co-investment funds, including those in the buyout, infrastructure, energy, real estate, debt, distressed and credit sectors. For insight from Berthou, see our two-part series on ESG investing: “The Past, Present and Future in the Hedge Fund Industry” (Nov. 10, 2016); and “How Hedge Fund Managers Can Design an ESG Investing Policy” (Nov. 17, 2016). For coverage of other recent hires at the firm, see “Kirkland & Ellis Expands Its Investment Funds Team in Boston” (Jul. 27, 2017).

Investment Funds Partner With Expertise in Digital Technology Joins Perkins Coie

Michael Didiuk, a former SEC attorney, has joined Perkins Coie as a San Francisco-based partner in the firm’s investment management practice. A former member of the SEC’s Distributed Ledger Technology and Structured Products Working Groups, Didiuk specializes in cryptocurrency, blockchain and other new and evolving technologies that are transforming the trading and investment sectors. See our three-part series on blockchain and the private funds industry: “Basics of the Technology and How the Financial Sector Is Currently Employing It” (Jun. 1, 2017); “Potential Uses by Private Funds and Service Providers” (Jun. 8, 2017); and “Potential Impediments to Its Eventual Adoption” (Jun. 15, 2017).

The HFLR Will Not Publish Next Week and Will Resume Regular Publication in January

Please note that the Hedge Fund Law Report will not publish an issue during the upcoming holiday week and will resume its normal weekly publication schedule during the week starting January 1, 2018.