Feb. 16, 2017

Malta’s New Notified AIF Vehicle Facilitates Quick Market Launches Without Requiring Regulatory Pre-Approval or Burdensome Ongoing Oversight

In 2016, the Malta Financial Services Authority (MFSA) undertook a consolidation of its funds regime. This effort resulted in the addition of the notified alternative investment fund (Notified AIF) to Malta’s extensive range of fund structures. A Notified AIF is unique because it enables the timely launch of an alternative investment fund as long as it meets certain conditions to be “notified” to the MFSA by the AIF’s alternative investment fund manager. Under the Notified AIF framework, the MFSA focuses on regulating the product provider – in this case, the fund manager – rather than the fund product, which is what facilitates the launch of a Notified AIF without requiring pre-authorization by the MFSA. In a guest article, Dr. Yanika Fino, an associate at GANADO Advocates, describes the requirements for forming a Notified AIF, the types of funds that are eligible to use this vehicle and some of the pros and cons associated with pursuing this structure. For more on launching funds in Malta, see “What Malta Can Offer the Hedge Fund Industry: An Interview With the Chairman of FinanceMalta” (Jan. 26, 2017); and “European Alternative Funds: The Alternatives” (Jun. 24, 2009).

Will Industry Deregulation Affect the Value of Legal and Compliance Staff? An Interview With David Claypoole on In-House Compensation at Fund Managers (Part Two of Two)

Following the enactment of the Dodd-Frank Act, the market for in-house general counsels (GCs), chief compliance officers (CCOs) and junior legal and compliance personnel at fund managers bloomed. As the Trump administration has pledged to roll back Dodd-Frank, many wonder whether the opposite effect will be seen and whether the market for – and compensation of – in-house legal and compliance staff will decrease. In a recent interview with the Hedge Fund Law Report, David Claypoole, founder and president of Parks Legal Placement, shared detailed insight into the overall in-house legal and compliance market, based on more than a decade of compensation data. In this article, the second in a two-part series, Claypoole shares his thoughts on anticipated changes to the legal and compliance landscape under the new Trump administration, including a possible repeal of the Dodd-Frank Act; the movement of in-house staff from hedge funds to other industries or practices; and characteristics of successful in-house personnel. In the first article, Claypoole discussed how recent hedge fund performance may affect GC and CCO compensation; trends he has identified in legal and compliance compensation; the drivers of compensation for top legal and compliance personnel; and the backgrounds of candidates vying for these positions. In April, Claypoole will present on trends in legal and compliance compensation at GAIM Ops Cayman 2017. For more information on the conference, click here. To register, taking advantage of the HFLR’s promotional discount of 10 percent off the conference price (plus an additional $700 savings before February 17, 2017), click the link available in this article. For more on ways the Trump administration may affect the industry, see “How the Trump Administration’s Core Principles for Financial Regulation May Benefit the U.S. Funds Industry (Part One of Two)” (Feb. 16, 2017). For more on compensation, see also “Hedge Fund Manager Compensation Survey Looks at 2014 Compensation Levels, Job Satisfaction and Hiring Trends” (Jan. 22, 2015); and “Report Reveals Trends in Compensation of Investment Professionals at Buy-Side Firms” (Dec. 19, 2013).

How the Trump Administration’s Core Principles for Financial Regulation May Benefit the U.S. Funds Industry (Part One of Two)

On February 3, 2017, the new administration of President Donald J. Trump issued a pair of executive actions with a potentially dramatic impact on the financial sector and the investment funds market in the U.S. and beyond. One is an executive order, entitled “Core Principles for Regulating the United States Financial System” (Core Principles Memorandum), and the other is a presidential memorandum concerning the Department of Labor’s fiduciary duty rule (DOL Fiduciary Rule). Both actions are expressions of a general pro-business and anti-regulation stance on the part of the new President and administration, and they both contain provisions that may help the financial sector generally and the hedge fund industry in particular. The review and reevaluation of portions of the Dodd-Frank Act – as well as the delay and possible redrafting or even rescission of the DOL Fiduciary Rule – could provide huge benefits for a funds sector struggling under onerous regulations in recent years. To help readers understand the content, purpose and potential impact of the Core Principles Memorandum and the DOL Fiduciary Rule memorandum, the Hedge Fund Law Report has prepared this two-part series, summarizing both executive actions and including insights from attorneys specializing in financial regulations and employment and labor law. This first article addresses the Core Principles Memorandum, exploring the basic principles set forth therein and analyzing the action’s goals and the ways it may specifically benefit hedge funds. The second article will analyze the possible impact that the presidential memorandum will have on the DOL’s Fiduciary Rule and what those changes would mean for hedge funds. For additional analysis of actions by the Trump administration, see “How Tax Reforms Proposed by the Trump Administration and House Republications May Affect Private Fund Managers” (Feb. 9, 2017).

WilmerHale Attorneys Detail 2016 CFTC Enforcement Actions and Potential Priorities Under Trump Administration

Fund managers that trade futures, swaps and other derivatives may be subject to both CFTC and SEC supervision. A recent web briefing by regulatory and enforcement attorneys from WilmerHale provided a comprehensive review of significant enforcement and regulatory actions by the CFTC in 2016, considered pending CFTC legislation and regulation and offered insight into what CFTC operations and priorities may look like under the Trump administration. The briefing featured WilmerHale partners Paul M. Architzel, Dan M. Berkovitz and Anjan Sahni, along with special counsel Gail C. Bernstein. This article highlights the panelists’ key insights. For additional insight from WilmerHale attorneys, see “FCPA Concerns for Private Fund Managers (Part One of Two)” (May 28, 2015); “FCPA Risks Applicable to Private Fund Managers (Part Two of Two)” (Jun. 11, 2015); and “Best Legal and Accounting Practices for Hedge Fund Valuation, Fees and Expenses” (Jul. 18, 2013).

SEC Brings Enforcement Action for FCPA Violations Against Two Och-Ziff Employees 

In the wake of the SEC’s September 2016 settlements with Daniel S. Och, Joel M. Frank, Och-Ziff Capital Management LLC (OZ) and OZ Management LP, the SEC has taken aim at two additional OZ employees – senior executive Michael L. Cohen and analyst Vanja Baros. In a complaint filed in the U.S. District Court for the Eastern District of New York, the SEC asserts that, by arranging to pay bribes to numerous government officials in Africa to secure lucrative deals for OZ funds and misleading an OZ investor in the process, Cohen and Baros violated the Foreign Corrupt Practices Act, anti-fraud provisions of the Investment Advisers Act of 1940 and certain provisions of the Securities Exchange Act of 1934. For our full coverage of the OZ settlement, see “Five Compliance Lessons Private Fund Managers Can Glean From Och-Ziff’s FCPA Settlement” (Nov. 3, 2016); and “Recent SEC and DOJ Settlements With Och-Ziff and Two Executives Underscore FCPA Compliance Risks to Private Fund Managers” (Oct. 27, 2016).

FCA Director of Enforcement Details the Goals and Tenets of the Agency’s Senior Managers Regime and Proposed Modifications to Its “Early Settlement” Program

Regulatory agencies have traditionally sought to deter misconduct of private funds and other industry actors by levying, and publicizing, substantial fines against offending parties. Although the U.K. Financial Conduct Authority (FCA) has arguably followed suit, levying more than £3 billion in financial penalties over the past five years, the bulk of those actions occurred prior to April 2016, suggesting the agency has more recently adopted a different approach. See “FCA 2016-2017 Regulatory and Supervisory Priorities Include Focus on AML, Cybersecurity and Governance” (Apr. 14, 2016). In a recent speech, Mark Steward, Director of Enforcement and Market Oversight at the FCA, outlined the alternate path the FCA has chosen to deter misconduct. This article details the new measures that have been, or will be, adopted by the FCA, including its pursuit of liability against firm management for misconduct under the Senior Managers Regime and proposed changes to its “early settlement” program to incentivize the resolution of cases by increasing the fairness of proceedings. For additional insight from Steward, see “FCA Enforcement Director Emphasizes Responsibilities Under Senior Managers Regime” (Jun. 2, 2016). For further commentary from the FCA, see “FCA Director Lays Out Expectations for Cybersecurity of Financial Services Firms: Identification of Cyber Risks, Detection, Firm Preparedness and Information Sharing” (Sep. 29, 2016); and “FCA Director Emphasizes Regulator’s Focus on Firm’s Culture of Compliance” (Jul. 21, 2016).

Michael Wong Joins Dechert in Hong Kong

Dechert has hired Michael Wong as a partner in its Hong Kong office. Wong advises clients in the hedge fund, private equity fund, debt fund, venture capital fund and real estate fund sectors on fund formation, investment, licensing, marketing and distribution. He also specializes in regulatory compliance matters. For coverage of last year’s Dechert Global Alternative Funds Symposium, which addressed Chinese regulations and the complexities of doing business in the Chinese market, see “Capital-Raising Opportunities, Regulatory Hurdles and Cultural Challenges Faced by Hedge Fund Managers in China and the Middle East” (Jun. 23, 2016). For additional insight from Dechert partners, see “Dechert Panel Discusses Recent Hedge Fund Fee and Liquidity Terms, the Growth of Direct Lending and Demands of Institutional Investors” (Jul. 14, 2016); as well as our prior collaboration with Dechert on the evolving role of hedge fund GCs and CCOs: Part One (Dec. 10, 2015); and Part Two (Dec. 17, 2015).