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    Dec. 13, 2018

What Fund Managers Need to Know About Corporate Access: Implementing Testing and Preparing for SEC Scrutiny (Part Three of Three)

An integral aspect of a robust compliance program is a forensic testing plan designed to evaluate whether an adviser’s employees are adhering to policies and procedures adopted by the adviser. Thus, once a fund manager has defined the parameters that will govern how its investment personnel may interact with executives at publicly traded companies – a practice frequently referred to as “corporate access” – the next step is to periodically assess whether its employees are operating within those boundaries and following the adviser’s procedures. This final article in our three-part series analyzes several testing mechanisms that managers can use to ensure compliance with their policies governing corporate access, as well as the SEC’s expectations regarding an adviser’s oversight, controls and procedures related to communications with executives at publicly traded companies. The first article provided an overview of the context in which meetings between fund managers and issuers arise; the goals of corporate access; the ways brokers are compensated for facilitating these meetings; and two key legal risks presented by this practice. The second article discussed how advisers can design policies to minimize the risks associated with these meetings, as well as six front-end controls that advisers should consider adopting. See our two-part series discussing the results of a survey on compliance testing: “Fees and Expenses, Investment Mandates, Big Data and Custody” (Aug. 2, 2018); and “Best Execution, Soft Dollars, Advertising, Individual Clients and Cryptocurrency Trading” (Aug. 9, 2018).

A Checklist for Investment Advisers to Streamline and Organize Their Annual Compliance Program Reviews (Part One of Two)

Rule 206(4)‑7 under the Investment Advisers Act of 1940 requires registered investment advisers to evaluate, at least annually, the adequacy of their compliance policies and procedures and the effectiveness of the compliance program’s implementation. Compliance with the annual review requirement is an area of focus for the SEC, and failure to comply can result in significant penalties. Although Rule 206(4)‑7 does not mandate a specific deadline, investment advisers often perform their annual compliance reviews to coincide with other year-end review processes, such as their annual financial audits. Given the present time of year, this two-part series is structured as a checklist that investment advisers can adapt and use to streamline and organize their annual reviews. The first part of this series analyzes Rule 206(4)‑7 and sources of guidance on complying with the rule; spells out who should be involved in conducting an investment adviser’s annual compliance program review, what information should be gathered for review and what areas should be covered; and notes the questions that SEC examiners are likely to ask about an adviser’s annual review during an examination, which advisers should be able to answer after having conducted their reviews. The second part will provide a non‑exhaustive list of the questions advisers should answer for each substantive area covered in the review. For more on conducting an annual review, see “RCA Symposium Identifies Best Practices for Hedge Fund Managers on Topics Including Insider Trading, Compliance Reviews, SEC Examinations, Fund Governance, Form PF and Marketing and Advertising (Part One of Two)” (Feb. 21, 2013).

Conflicts of Interest Questionnaires: Who Should Complete Them, When They Should Be Completed and How Managers Can Use Them Effectively (Part Two of Two)

Investment advisers must effectively manage conflicts of interest, particularly given the SEC’s continuing focus in this area. An adviser’s employees can be the source of potential and actual conflicts through their outside activities and relationships. Thus, investment advisers must gather information from employees on common situations and relationships that may give rise to conflicts. Conflicts of interest questionnaires are a commonly used tool for gathering this information. This second article in our two-part series explores how to use conflicts questionnaires, including who should be required to complete them, when they should be completed and how advisers should use the information gathered on these forms. The first article explained why investment advisers should use conflicts of interest questionnaires and described the areas the questionnaires should cover. See “SEC Sanctions Adviser That Failed to Disclose Sufficient Information About Its Conflicts of Interest in Recommending Wrap Fee Programs to Clients” (Oct. 11, 2018).

How Hard Is Brexit Expected to Impact Alternative Fund Managers?

Brexit has created significant uncertainty for alternative fund managers. It remains unclear whether the E.U. and U.K. can reach a mutually acceptable agreement for a smooth transition or whether there will be a “hard” Brexit. A recent program sponsored by the New York Alternative Investment Roundtable and the Chartered Alternative Investment Analyst Association delved into Brexit’s impact on consumers and financial markets; U.K. access to the E.U.; and future regulation. Marianne Scordel, founder of Bougeville Consulting, moderated the discussion, which featured Mikhael Ayache, Economic Counselor and Deputy Financial Counselor of the French Treasury in the U.S.; Raymond Mouhadeb, U.S. general counsel of Lombard Odier Asset Management; and Barbara G. Novick, vice chairman and co‑founder of BlackRock. This article summarizes the key takeaways from the program. See our two-part series on the potential impact of Brexit: “Effect of Hard vs. Soft Brexit on Hedge Fund Managers” (Jul. 7, 2016); and “Hedge Fund Marketing and Distribution Opportunities in a Post-Brexit World” (Jul. 14, 2016).

ACA 2018 Compliance Survey Covers SEC Exam Experience and Insider Trading Controls (Part One of Two)

ACA Compliance Group (ACA) recently completed its 2018 Alternative Fund Manager Compliance Survey, the results of which were discussed in a webinar by Colleen Marencik and Tessa Carbone, director and principal consultant, respectively, at ACA. This article, the first in our two-part coverage, examines the survey’s demographics and the key takeaways from the portions of the survey covering SEC examination experience and insider trading controls. The second article will analyze the portions of the survey relating to fees and expenses, as well as custody. For coverage of ACA’s compliance survey from early 2018, see “Compliance Programs and SEC Examination Priorities” (May 31, 2018); and “Electronic Communications, Personal Trading and Corruption Risk” (Jun. 14, 2018).

SEC Investor Advisory Committee Seeks to Clarify Proposed “Best Interest” Standard to Ensure a Uniform Fiduciary Standard for Advisers and Broker-Dealers

At a recent meeting, the SEC’s Investor Advisory Committee (IAC) approved a set of recommendations (Recommendations) regarding the SEC’s proposed Regulation Best Interest, Form CRS and fiduciary guidance under the Investment Advisers Act of 1940. This article reviews the Recommendations and includes relevant observations and insights from SEC Chairman Jay Clayton and members of the IAC who participated in the meeting. For additional recommendations from the IAC, see “What Do the Investor Advisory Committee’s Recommendations Mean for the Future of Marketing of Hedge Funds to Natural Persons?” (Oct. 24, 2014).

Perkins Coie Expands Investment Management Practice With Addition of Former SEC Branch Chief

Valerie Dahiya, former SEC Branch Chief, recently joined Perkins Coie as a partner in the firm’s Washington, D.C., office. As a member of the investment management practice, as well as the blockchain technology and digital currency industry group, Dahiya will focus on broker-dealer law, advising clients on issues such as SEC and FINRA exams and other regulatory issues. For coverage of another recent addition to the firm, see “Perkins Coie Expands Funds Practice in Denver” (Apr. 26, 2018).

Funds Lawyer Christian Gloger Joins Kleinberg Kaplan As Partner in New York

Kleinberg Kaplan announced that Christian Gloger has joined its private funds practice as a partner in its New York office. In addition to advising U.S. and international hedge fund and private equity fund sponsors on fund formation, restructuring and seed-capital investments, Gloger advises fund managers on regulatory matters, including the Investment Advisers Act of 1940, U.S. securities laws and regulatory changes under the Dodd‑Frank Act. For additional insight from Gloger, see our two-part series “Application of the AIFMD to Non‑E.U. Alternative Investment Fund Managers”: Part One (May 23, 2013); and Part Two (Jun. 13, 2013).

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