May 23, 2019

How Fund Managers Can Use Non‑Reliance Clauses to Protect Themselves From Investor Claims of Misrepresentation

When an investment manager sends a prospective investor the subscription package for one of its funds, the documents almost always contain a so-called “non-reliance” clause requiring the investor to expressly disclaim reliance on any representation or statement not contained in the fund’s governing documents and private placement memorandum. Those clauses are intended to protect the manager from potential liability arising from, among other things, statements made in meetings, teasers or pitch books concerning the merits of an investment in the fund. Their enforceability is nuanced, however, particularly under New York or Delaware law – commonly chosen to govern fund documents and disputes. In a guest article, Pryor Cashman partner Jonathan Shepard, along with counsel Eric Dowell and associate Lauren Cooperman, discuss how non-reliance clauses are treated by New York courts, including in a recent instructive decision issued in the Southern District of New York; provide practical guidance for asset managers and their legal advisors on crafting appropriate non-reliance clauses; examine how managers can include additional protections in their fund documents to protect against investor misrepresentation claims; and review how the laws of New York and Delaware are both well-developed and more favorable to managers than those found in other states, most notably California. See “Contractual Provisions That Matter in Litigation Between a Fund Manager and an Investor” (Oct. 2, 2014). For insight from another Pryor Cashman attorney, see “How Fund Managers Can Mitigate the Impact of Litigation on Their Transactions and Relationships” (Apr. 4, 2019).

Sidley Panel Discusses Operational and Tax Challenges of Hybrid Funds

Some private fund managers establish hybrid funds to diversify or complement their core hedge or private equity fund offerings, or in response to investor interest. A recent program presented by Sidley Austin provided an overview of the benefits and drawbacks of hybrid funds and analyzed the most common structuring, operational and tax issues faced by sponsors of hybrid funds. Sidley partner Elizabeth Shea Fries moderated the discussion, which featured partners Scott Macdonald, John T. Schaff and Jennifer A. Spiegel. This article summarizes their insights. For further commentary from Sidley attorneys, see “What Are the Implications for Investment Managers of the Revised Prudential Framework for E.U. Investment Firms?” (Mar. 22, 2018); and “How Recent Developments Under BEPS May Affect Fund Managers’ Ability to Use Special Purpose Vehicles” (Oct. 5, 2017).

A Recap of AIMA’s 2019 Global Policy & Regulatory Forum

The Alternative Investment Management Association (AIMA) recently held its annual “Global Policy & Regulatory Forum” (GPRF) in New York City. This year’s event was devoted to the themes of technology, innovation and change, although lingering questions over Brexit periodically arose throughout the day. Despite this uncertainty, the overall mood was positive, as speakers noted that their Brexit contingency plans accounted for the array of possible outcomes. The GPRF included insights from regulators across several different jurisdictions, and it prominently featured conversations with CFTC Commissioner Rostin Behnam and SEC Commissioner Hester Peirce. This article highlights some of the core themes that were explored during the GPRF. For additional insights from AIMA, see “Performance, In-Person Communication and Fees Are Key Elements of Hedge Fund Manager Success, According to AIMA/PwC Survey” (Oct. 4, 2018); and “Most Small and Emerging Managers Expect Headcount to Increase in Next Three Years: AIMA/GPP Study Explores Viability, Key Business Terms, Outsourcing and Growth Prospects” (Jul. 27, 2017).

JPM Institutional Investor Survey Explores Non‑Traditional Alternative Investment Vehicles and Due Diligence (Part Two of Two)

A recent J.P. Morgan Capital Advisory Group survey asked more than 200 institutional investors about their perspectives on several hedge fund investment issues. This two-part series summarizes the findings in the survey report, and this second article explores the use of non-traditional alternative investment vehicles, along with investment and operational due diligence. The first article detailed drivers of hedge fund allocations; industry concerns; fee and liquidity terms; allocation sizes and preferences; and performance expectations. For coverage of another recent survey, see our two-part analysis of the ACA 2018 compliance survey: “SEC Exam Experience and Insider Trading Controls” (Dec. 13, 2018); and “Fees, Expenses and Custody” (Dec. 20, 2018).

Morgan Lewis Expands Washington, D.C., Office With Addition of Gregg Buksbaum

Gregg Buksbaum has joined the Washington, D.C., office of Morgan Lewis as a partner in its investment management practice group. Buksbaum primarily represents fund sponsors and institutional investors in the formation of, and investment in, various types of private investment funds, including private equity, hedge, venture capital, real estate, infrastructure, mezzanine, credit, distressed debt and special opportunity funds, as well as funds of funds. For insight from another Morgan Lewis partner, see “CFTC Proposes Amendments to Regulations to Codify Existing Relief for CPOs and CTAs” (Nov. 15, 2018).