Apr. 26, 2018

Former CEO of JPAAM Discusses Risks and Challenges Facing the Hedge Fund Industry

As the hedge fund industry continues to face challenges, it has never been more important for managers to ensure that they align their interests with those of their clients and provide first-rate service to their investors. The Hedge Fund Law Report recently interviewed Joel Katzman, president of Katzman Advisors, former president and CEO of J.P. Morgan Alternative Asset Management and a panelist at the 2018 Cayman Alternative Investment Summit. This article presents Katzman’s views on several of the current challenges facing the industry and provides his perspectives on the things that matter most to hedge fund allocators. For additional insights on the evolution of the hedge fund industry, see “How to Prepare for the Technological Revolution’s Transformation of the Hedge Fund Industry” (Apr. 5, 2018); and “Schulte Roth & Zabel Founding Partner Paul Roth Discusses the History and Future of the Hedge Fund Industry” (Feb. 8, 2018).

What Are the GDPR’s Implications for Alternative Investment Managers? (Part One of Two)

The E.U.’s General Data Protection Regulation (GDPR) represents the most significant development in E.U. privacy law in two decades and will capture the “processing” of “personal data” by any manager or fund domiciled in the E.U. The GDPR will also capture managers and funds located outside the E.U. that process the data of individuals located in the E.U. in connection with the offering of services to those individuals in the E.U. Because all investment management firms and funds will receive and process personal data in some way, shape or form in relation to their day-to-day business activities, it is vital for fund managers to be aware of the GDPR and its implications. In this two-part guest series, Oliver Robinson, associate director of the Alternative Investment Management Association, breaks down the key provisions of the GDPR and how they may affect advisers and private funds. This first article reviews the driving forces behind the enactment of the GDPR, the territorial scope of the GDPR, the data-protection principles that apply when processing personal data, the legal bases pursuant to which in-scope firms may process personal data and the rules surrounding cross-border transfers of personal data. The second article will discuss the rights of data subjects, minimum requirements applicable to processors, the role of a “Data Protection Officer,” cybersecurity measures required by the GDPR, the obligation to report breaches of the GDPR and parallel legislation introduced in the U.K. in light of Brexit. For more on the GDPR, see “A Fund Manager’s Roadmap to Big Data: Privacy Concerns, Third Parties and Drones (Part Three of Three)” (Jan. 25, 2018).

Lessons Private Fund Managers Can Learn From U.S. Bancorp’s Settlement of AML Violations

The U.S. Attorney for the Southern District of New York recently announced the settlement of a case involving violations of the Bank Secrecy Act’s anti-money laundering (AML) requirements by U.S. Bancorp. The bank was charged with willfully failing to both have an adequate AML program and file suspicious activity reports. In exchange for the government’s deferral of prosecution of the felony violations for two years, and pending approval by the court, U.S. Bancorp has agreed to pay a $528 million penalty and continue reforms of its AML program. Although most private fund advisers are not currently required to have AML programs, many have elected to voluntarily implement certain AML-related policies and procedures. In addition, it is likely that the SEC expects private fund advisers to maintain AML programs that meet certain minimum standards as a best practice. This article examines the mistakes that U.S. Bancorp made with respect to its AML program, identifies the lessons that private fund advisers can learn from this action to avoid making the same compliance errors and presents analysis from an attorney with expertise in AML compliance. See our two-part series on establishing an AML program: “How Hedge Fund Managers Can Establish an AML Program Under FinCEN’s Proposed Rule” (Nov. 5, 2015); and “How Hedge Fund Managers Can Operate an AML Program Under FinCEN’s Proposed Rules” (Nov. 12, 2015).

SEC Confirms Cyber Disclosure Expectations in New Guidance

The SEC’s latest guidance emphasizes proper and full disclosures related to cybersecurity risks and incidents throughout relevant filings. In that guidance, the SEC stated that “informing investors about material cybersecurity risks and incidents in a timely fashion” is critical, even if an entity has “not yet . . . been the target of a cyber attack.” The guidance reiterates the SEC’s 2011 guidance and addresses two new topics: (1) “the importance of cybersecurity policies and procedures”; and (2) the “application of insider trading prohibitions in the cybersecurity context.” This article analyzes the guidance and offers practical advice on risk disclosures from a chief compliance officer with experience preparing these types of disclosures. See our three-part series on how fund managers should structure their cybersecurity programs: “Background and Best Practices” (Mar. 22, 2018); “CISO Hiring, Governance Structures and the Role of the CCO” (Apr. 5, 2018); and “Stakeholder Communication, Outsourcing, Co-Sourcing and Managing Third Parties” (Apr. 12, 2018).

Perkins Coie Expands Funds Practice in Denver

Elizabeth Sipes has joined Perkins Coie as a partner in the firm’s corporate and private funds practices in Denver. Sipes advises hedge, private equity, real estate and venture capital fund sponsors on the registration and structuring of funds and on side letter negotiations with investors. For coverage of another recent hire at the firm, see “Investment Funds Partner With Expertise in Digital Technology Joins Perkins Coie” (Dec. 21, 2017). For commentary from another Perkins Coie attorney, see “Institutional Investor Forum Focuses on Hedge Fund Manager Fiduciary Duty, SEC Subpoena Power, Hybrid Hedge Fund Structures, Managed Account Platforms, Codes of Ethics and More” (Feb. 4, 2010).