Dec. 20, 2018

Investors in Cayman Funds Have Limited Access to Fund Documents, Records and Information Under Cayman Law

Several vehicles can be used to establish funds in the Cayman Islands: unit trusts, limited partnerships, limited liability companies and – the most popular vehicle by far – exempted companies. The Cayman Islands Companies Law, which governs exempted companies, does not grant company members a freestanding right to inspect the accounts, books and records of the company or otherwise to obtain information concerning company affairs. Questions therefore arise about how, if at all, that restriction on access can be overcome, and what, if any, other remedies may be available to members. In a guest article, Paul Smith and James Eggleton, partner and associate, respectively, at Harneys, discuss the rights of members of exempted companies to access company documents and information concerning company affairs. For analysis of a Cayman fund investor bringing suit against the fund in the U.S., see “New York Court of Appeals Decision Eases Path for Investor Lawsuits Against Cayman Funds, but Certain Hurdles Remain” (Dec. 7, 2017). For additional commentary from Harneys partners, see “How Fund Managers Can Navigate the E.U. General Data Protection Regulation and the Cayman Islands Data Protection Law” (Aug. 9, 2018); and “In Madoff-Related Litigation, Cayman Court of Appeal Holds That a Liquidator May Not Adjust a Shareholder’s NAV, Even When Based on Fictitious Profits” (May 17, 2018).

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

Registered investment advisers are required by Rule 206(4)‑7 under the Investment Advisers Act of 1940 to conduct annual reviews of the adequacy of their compliance policies and procedures, as well as the effectiveness of the compliance program’s implementation. The SEC has focused on the annual compliance program review requirement in its examinations and enforcement actions. See “Lax Annual Compliance Review Procedures May Draw SEC Enforcement Action” (Nov. 17, 2016). Advisers often perform this review in conjunction with other year-end review processes. Thus, this two-part series is designed to function as a checklist that investment advisers can use to streamline and organize their annual reviews. This second article provides a non-exhaustive list of questions to be answered for each substantive area covered during an adviser’s annual compliance program review. The first article analyzed Rule 206(4)‑7 and sources of guidance on complying with the rule; spelled 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 noted the questions that SEC examiners are likely to ask about an adviser’s annual review during an examination. For more on annual compliance reviews, see “Survey Reveals Compliance Weaknesses of Hedge Fund Managers Relative to Other Financial Services Firms, Including CCO Qualifications and Frequency of Annual Compliance Reviews” (Sep. 15, 2016).

HFLR Program Explores Current SEC Examination Practices and Issues (Part One of Two)

Early in the Trump administration, some speculated that the private funds industry would experience an era of lighter regulation and less enforcement. Nearly two years in, however, the SEC is examining significantly more advisers than in the recent past. A recent Hedge Fund Law Report webinar, moderated by Kara Bingham, Senior Editor at the Hedge Fund Law Report, and featuring Andrew M. Calamari, partner at Finn Dixon & Herling and former Director of the SEC’s New York Regional Office; Patricia A. Poglinco, partner at Seward & Kissel; and Joel A. Wattenbarger, partner at Ropes & Gray, explored these points and the current examination environment. This first article in our two-part series analyzes the portions of the program that explored the current SEC examination climate; the types of examinations conducted by the SEC; and the lifecycle of an exam, including practical advice on how advisers can manage the production of documents to SEC examiners. The second article will explore how the SEC approaches the examination of six substantive areas of an adviser’s business, whether the SEC continues to adhere to a “broken windows” approach to enforcement and practical guidance for how fund managers can remain prepared for an SEC exam. See also our two-part series on the examination process: “What Hedge Fund Managers Need to Know About Getting Through an SEC Examination” (Jun. 16, 2016); and “Fees, Conflicts, Investment Allocations and Other Hot Topics Hedge Fund Managers Should Expect During an SEC Examination” (Jun. 30, 2016).

Annual Walkers Fundamentals Seminar Explores Fund Launches, Asset Flows, Strategies, Durations, Fees, Governance and Hot Topics (Part One of Two)

Institutional investors continue to favor alternative investments, especially equity and credit hedge fund strategies and private equity. This was one of the key takeaways from this year’s Walkers Fundamentals Hedge Fund Seminar, featuring Walkers partners Nicholas Blake‑Knox, Rolf Lindsay, Ingrid Pierce, Colette Wilkins and Caroline Williams. This two-part series reviews the above and other highlights of the seminar. This first article outlines recent trends in fund launches, asset flows and preferred strategies; fund durations, fees and governance; expectations for cryptocurrency and environmental, social and governance investing; and the impact of Brexit. The second article will address best practices for managers and investors to navigate suspensions of redemptions, liquidations and restructurings. For coverage of the Walkers Fundamentals Hedge Fund Seminar from prior years, see: 2017 Seminar; 2016 Seminar; 2015 Seminar; and 2014 Seminar.

What Fund Managers Should Consider When Negotiating SaaS Agreements

Software-as-a-service (SaaS) contracts are superseding the traditional licenses that customers receive when purchasing other types of software. A recent Strafford program provided a comprehensive look at negotiating key provisions of SaaS contracts, including data ownership; controls over data; data security; indemnification; reps and warranties; and levels of service. The program featured Beth A. Fulkerson, partner at Culhane Meadows; Nathan Leong, lead counsel, U.S. Health & Life Sciences Legal, at Microsoft; and David W. Tollen, founder of Tech Contracts Academy and Sycamore Legal. This article details the key takeaways from the program. For more on SaaS agreements, see “Greenwich Associates Report Argues That Hedge Fund Managers Can Use the Cloud to Obtain Greater Computing Power at Lower Cost With Acceptable Risk” (Jun. 6, 2014); and “Key Considerations for Hedge Fund Managers in Evaluating the Use of Cloud Computing Solutions (Part One of Two)” (Oct. 18, 2012).

ACA 2018 Compliance Survey Covers Fees, Expenses and Custody (Part Two of Two)

In a recent ACA Compliance Group (ACA) webinar, Colleen Marencik and Tessa Carbone, director and principal consultant, respectively, at ACA, discussed the results of ACA’s recently completed 2018 Alternative Fund Manager Compliance Survey. This article, the second in our two-part coverage, analyzes the portions of the survey relating to fees and expenses, as well as custody. The first article examined the survey’s demographics and the key takeaways from the portions of the survey covering SEC examination experience and insider trading controls. For coverage of ACA’s 2017 compliance survey, see “SEC Exams and Practices Used to Mitigate Counterparty Risk” (Jan. 18, 2018); and “Investment Allocations, Conflicts of Interest and Valuation” (Feb. 1, 2018).

Investment Management Lawyer Emily Brown Joins Schulte’s London Office

Schulte Roth & Zabel announced the addition of Emily Brown as partner in the investment management group in the firm’s London office. With broad expertise across fund jurisdictions, including the U.K., Luxembourg and the Channel Islands, Brown advises both sponsors and major institutional investors on a wide range of matters in the investment fund sphere. For commentary from other Schulte partners, see “What Fund Managers Need to Know About Recent Developments to the New Anti-Sexual Harassment Policy and Training Requirements in New York City and New York State” (Sep. 13, 2018); and “How the New York Court of Appeals’ Limitation on Martin Act Liability Affects Fund Managers” (Jul. 12, 2018).

Offshore Funds Lawyer Robert Varley Joins Appleby’s Corporate Partnership in the BVI Office

Appleby announced the appointment of Robert Varley to its corporate partnership in the British Virgin Islands office. Varley had previously been based in Guernsey. For insight from other Appleby attorneys, see “How Funds Formed in the Cayman Islands Can Mitigate Legal Risk by Aligning Their Constitutional Documents and Operations” (Oct. 11, 2018).