Apr. 11, 2019

SEC Adopts Enhanced Order Routing Disclosures: How Fund Managers Should Use These Additional Disclosures Going Forward (Part Three of Three)

Amended Rule 606 of the Securities Exchange Act of 1934 explicitly imposes additional disclosure obligations on broker-dealers concerning their order handling and routing practices in National Market System (NMS) securities. Although fund managers that trade NMS securities do not have any direct obligations under the new rule, the SEC and fund investors will likely expect fund managers to consider these new disclosures when evaluating their broker-dealers’ performance and as part of their best execution responsibilities. This third article in our three-part series explores how fund managers should incorporate these new disclosures into their best execution reviews and transaction cost analyses. The first article provided background on the evolution of the equity market structure; existing Rule 606 disclosure requirements; the types of incentives that exchange and non-exchange markets provide to executing broker-dealers; and ways the “pass-through” fees that some fund managers pay to their executing brokers differ from the “all-in” commission fee structure. The second article discussed the amended Rule 606(a) reports and new Rule 606(b)(3) reports. See “Katten Forum Identifies Best Practices for Hedge Fund Managers Regarding Best Execution, Soft Dollars, Principal Trades, Agency Cross Trades, Cross Trades and Trade Errors” (Mar. 13, 2014); and “Trading Practices Session at SEC’s Compliance Outreach Program National Seminar Addresses Need for Holistic Compliance Procedures Dealing With Allocations, Best Execution and Cross Trades” (Feb. 23, 2012).

Recent Cayman Grand Court Decision Signals That Fund Managers Should Review Indemnification Provisions in Governing Documents

In a recent decision handed down by the Grand Court of the Cayman Islands (Court), some welcome clarification was provided in relation to the scope and application of indemnity clauses for directors of investment funds formed in the Cayman Islands. In a guest article, Nick Hoffman and Conal Keane, partner and senior associate, respectively, at Harneys, provide an overview of the case’s underlying facts, the Court’s holdings and the steps that fund managers should take to ensure that the directors to their Cayman funds have adequate protection under the funds’ respective indemnification provisions. For additional commentary from Hoffman, see “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). For more on issues pertaining to the Cayman Islands, see “Investors in Cayman Funds Have Limited Access to Fund Documents, Records and Information Under Cayman Law” (Dec. 20, 2018); and “How Funds Formed in the Cayman Islands Can Mitigate Legal Risk by Aligning Their Constitutional Documents and Operations” (Oct. 11, 2018).

How Managers Can Launch and Market UCITS Funds in the E.U. and Across the Globe

Funds launched under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive are attractive vehicles for reaching both professional and retail investors in the E.U. and beyond. A recent program sponsored by the Carne Group and RBC Investor & Treasury Services offered an in-depth look at the logistics of forming a UCITS fund, the marketing environment for UCITS funds, key investment restrictions and the potential impact of Brexit. The program featured David Giannone, managing director at RBC Investor & Treasury Services; Aymeric Lechartier and Nicola Cowman, managing director and director, respectively, at Carne Group; and Donnacha O’Connor, partner at Dillon Eustace. This article summarizes their insights. See “Are Alternative Investment Strategies Within the Spirit of UCITS?” (Jun. 8, 2012).

A Primer on Compliance Issues for Credit Strategies: Additional Risks in Credit Investing (Part Two of Two)

In a recent ACA Compliance Group (ACA) webinar, Lynne M. Carreiro and Kimberly Simmons Versace, managing director and senior principal consultant, respectively, at ACA discussed the key compliance issues faced by credit managers. This article, the second in a two-part series, highlights their key points with respect to additional risks in credit investing. The first article explored various credit and debt instruments, as well as some of the unique compliance issues faced by managers who invest in them. For further commentary from ACA, see “Panel Reviews Affiliated Transaction Rules (Part One of Two)” (Sep. 6, 2018); and “Challenges and Solutions in Managing Global Compliance Programs” (Oct. 5, 2017). 

Advisers Seeking to Divest Fund Assets Must Scrupulously Follow Stated Procedures

A fund manager that needs to divest assets may be tempted to cut corners, especially when the buyer is another vehicle advised by the manager. Doing so comes with great risk, however. The SEC recently charged an adviser and its principal with fraudulently rigging the auction of an asset held by a collateralized debt obligation they advised for the benefit of a different fund that they advised. The settlements are an important reminder of the need for managers to adhere scrupulously to both the letter and spirit of their governing documents and to mitigate all conflicts of interest. This article analyzes the terms of the settlement orders. See “Panel Examines Compliance Issues Faced by Credit Managers” (Nov. 15, 2018); and “As Cross Trades Between Client Accounts Continue to Draw SEC Scrutiny, Fund Managers Should Review Internal Policies and Client Disclosures” (Sep. 27, 2018).

Private Funds Lawyer Ivana K. Rouse Joins Latham & Watkins in Houston

Latham & Watkins welcomed Ivana K. Rouse to its Houston office as partner in the firm’s corporate department and investment funds practice. Rouse advises a wide range of private funds, including oil, gas and other energy funds; blockchain and cryptocurrency funds; credit funds; and real estate funds. She has also represented and worked on various types of fund vehicles and structures, including funds of funds, hedge funds, special purpose vehicles, funds of one, special situation funds, hybrid funds and co-investment vehicles. For insights from other Latham & Watkins attorneys, see “Anatomy of a Private Equity Fund Startup” (Jun. 22, 2017); and our three-part series on how fund managers can mitigate prime broker risk: “Preliminary Considerations When Selecting Firms and Brokerage Arrangements” (Dec. 1, 2016); “Structural Considerations of Multi-Prime or Split Custodian-Broker Arrangements” (Dec. 8, 2016); and “Legal Considerations When Negotiating Prime Brokerage Agreements” (Dec. 15, 2016).