Feb. 21, 2019

What Is Open-Source Software, and How Are Fund Managers Using It? (Part One of Three)

Open-source software (OSS) is characterized by licensing arrangements wherein copyright holders grant licensees the ability to freely change and distribute that software, subject to certain requirements or restrictions. These obligations may be minimal, as is the case with permissive licenses, or onerous, as is the case with so-called “copyleft” licenses. OSS exists for virtually any application, including artificial intelligence, database management and system security. Its ubiquity means that fund managers can leverage OSS for all segments of their businesses. This article, the first in a three-part series, discusses the basics of OSS, actions governments are taking to support it, relevant regulatory guidance and ways OSS is being used by fund managers. The second article will analyze the benefits of OSS, as well as the disadvantages and risks that it presents. The third article will evaluate actions fund managers can take to mitigate OSS risks, including policies, procedures and controls to adopt; ways to deal with third-party vendors; and due diligence. See our three-part series on big data: “Its Acquisition and Proper Use” (Jan. 11, 2018); “MNPI, Web Scraping and Data Quality” (Jan. 18, 2018); and “Privacy Concerns, Third Parties and Drones” (Jan. 25, 2018).

The Tax Cuts and Jobs Act One Year Later – Updates and Structuring Considerations for Private Funds and Their Managers (Part Two of Two)

Several of the new or amended provisions in the Tax Cuts and Jobs Act (Tax Act) directly affect private investment funds and their managers, and over the past year, the U.S. Internal Revenue Service has issued certain regulations and clarifications of which private investment funds and their managers should be aware. In a two-part guest series, Michele Gibbs Itri, partner at Tannenbaum Helpern Syracuse & Hirschtritt, provides a brief overview of the key provisions of the Tax Act affecting hedge funds; private equity funds and their respective portfolio companies; and private fund managers, as well as updates on these provisions since the enactment of the Tax Act, including a discussion of possible tax structuring strategies and other considerations going forward for investment managers and their funds. This second article explores the effect of the elimination of miscellaneous itemized deductions; the disallowance of deduction for excess business losses; changes to net operating loss deductions; the tax treatment of gain or loss realized on the sale of a partnership interest by a foreign partner; and modifications to the controlled foreign corporation regime and other international tax rules. The first article addressed the Tax Act’s impact on carried interest earned by fund managers, the self-employment tax and corporate versus pass-through structures, as well as the new limitation on the deduction of business interest. For more on the Tax Act, see “How the Tax Cuts and Jobs Act Will Affect Private Fund Managers and Investors” (Feb. 22, 2018). For further commentary from Itri, see “How Private Fund Managers Can Navigate the Hazards of State Income-Sourcing Rules” (Jul. 13, 2017).

Best Practices for Funds That Invest in Digital Assets

A recent panel of professionals from digital-assets-service companies analyzed the unique issues and risks facing fund managers that invest in cryptocurrencies and other digital assets, including maintenance of appropriate books and records; custody; and other compliance and regulatory matters. Moderated by William V. de Cordova, Editor-in-Chief of the Hedge Fund Law Report, the program featured David Byrd, blockchain assurance research lead at EY; Karl Cole‑Frieman, managing partner at Cole‑Frieman & Mallon LLP; Matthew Johnson, co-founder and chief product officer at Digital Asset Custody Company; Lisa L. Roitman, Bloomberg business development and marketing strategist; and Matthew Stover, CEO at MG Stover & Co. This article summarizes their insights. See “Ten Risk Areas for Private Funds in 2018” (May 3, 2018). For additional insight from Cole‑Frieman, see “How Blockchain Will Continue to Revolutionize the Private Funds Sector in 2018” (Jan. 4, 2018). For more from Roitman, see “Procedures for Hedge Fund Managers to Safeguard Trade Secrets From Rogue Employees” (Jul. 21, 2016).

Dechert Attorneys Consider Impact of the GDPR (Part One of Two)

The E.U.’s General Data Protection Regulation (GDPR) applies to fund managers that have offices or funds in the E.U.; offer services to E.U. residents; or hold or process E.U. residents’ data in the E.U. A recent Dechert webinar explored the hitherto relatively lenient regulatory touch and ways that firms can comply with the GDPR. The program was moderated by Dechert partner Timothy C. Blank and featured partners Dr. Olaf Fasshauer and Paul Kavanagh, as well as associates Hilary Bonaccorsi, Jennifer McGrandle and Sophie Montagne. This article, the first in a two-part series, outlines how regulators have promoted compliance with the GDPR, the cross-border transfer of data and the impact of Brexit. The second article will analyze the impact of key GDPR provisions, including data subject rights; data privacy management systems and notices; data protection officers; data protection impact assessments; and breach notification. See How Fund Managers Can Navigate the E.U. General Data Protection Regulation and the Cayman Islands Data Protection Law” (Aug. 9, 2018).

ACA Program Reviews State and Local Pay to Play Rules; Traps for the Unwary; and Compliance (Part Two of Two)

A recent ACA Compliance Group (ACA) program provided a comprehensive overview of the panoply of federal, state and local pay to play rules with which fund managers must contend. The program featured Ki P. Hong, partner at Skadden, and Elaine Vincent, consultant at ACA. This second article in our two-part series discusses state and local pay to play rules; traps for the unwary; and compliance policies and procedures. The first article summarized the four federal pay to play rules. For additional commentary from ACA, see “ACA Panel Reviews Effects of Impending MiFID II on U.S. Advisers” (Dec. 7, 2017); and “How Private Fund Managers Can Avoid Common Pitfalls When Calculating and Advertising Internal Rates of Return” (Sep. 7, 2017).

Seyfarth Shaw Adds Securities Litigator Steven Paradise to New York Office

Steven Paradise has joined the litigation department at Seyfarth Shaw LLP as partner in its New York office. Paradise has more than 25 years of expertise representing clients in an extensive array of commercial and securities litigation before state and federal courts in New York and other jurisdictions. For commentary from another Seyfarth partner, see “When and How Can Hedge Fund Managers Close Hedge Funds in a Way That Preserves Opportunity, Reputation and Investor Relationships? (Part Two of Two)” (Jun. 2, 2014).