May 7, 2020

The Dos and Don’ts of Investor Calls That Investment Managers Must Consider

Investor calls are a great way to provide transparency to private fund investors during these unprecedented times caused by the coronavirus pandemic. Even well-intended private fund managers, however, must be vigilant when planning and hosting those calls to avoid certain pitfalls and to protect themselves from liability. In a guest article, Troutman Sanders attorneys Genna Garver and Cot Eversole, along with Pepper Hamilton partner Julia Corelli, provide a series of “Dos” and “Don’ts” that fund managers should consider when planning and holding their investor calls. For more on communicating with investors, see our two-part series “How Are Your Peers Responding to the Most Intrusive Requests From Hedge Fund Investors?”: Part One (Mar. 17, 2016); and Part Two (Mar. 31, 2016). For additional commentary from Garver, see “SEC Proposes Expanding Permissible Performance Advertising Practices With Favorable Treatment for Private Fund Managers” (Dec. 5, 2019).

Former OCIE Private Funds Examiner Forecasts Potential SEC Response to Fund Manager Efforts During the Coronavirus Pandemic (Part One of Two)

Following his tenure as a Senior Specialized Examiner in the SEC’s Office of Compliance Inspections and Examinations (OCIE) Private Funds Unit, Drew Weilbacher has joined Promontory Financial Group (Promontory) as a director in its San Francisco office. He primarily consults investment advisers on their SEC registration obligations, including assessing their policies and procedures; performing mock audits; completing targeted deep-dive reviews of particular risk areas; and assisting with ongoing SEC examinations. The Hedge Fund Law Report recently interviewed Weilbacher in connection with his move to Promontory and to gain his valuable insights on the SEC’s potential treatment of fund managers during the coronavirus pandemic. This first article in a two-part series describes his time at the SEC and his role at Promontory; fund manager conduct OCIE will likely target during the pandemic; and ways the coronavirus could impact SEC examinations and the agency’s priorities. The second article will outline specific compliance risks – including valuations, liquidity and investor communications – arising during the pandemic, as well as mitigation techniques fund managers can adopt. See our three-part series on withstanding the coronavirus pandemic: “Form ADV Filing Relief, Investor Communications and Fund Valuation Issues” (Apr. 2, 2020); “Marketing Disruptions, Key Person Clauses and Cybersecurity Concerns” (Apr. 9, 2020); and “Business Continuity and Other Operational Risks” (Apr. 16, 2020).

Regulators Are Focusing on Sustainable and ESG Investments

Among the key challenges with sustainable investing, as well as environmental, social and governance (ESG) investing, are the variety of frameworks and absence of consistent terminology, metrics and disclosure standards. Notwithstanding those challenges, ESG and sustainable investing have undeniably become a key trend in financial services, including private funds. With that increase in popularity, however, those types of investments have also received significant attention by regulators worldwide. A working group established by the International Organization of Securities Commissions (IOSCO) surveyed both regulators and market participants to explore their respective initiatives on and concerns with sustainable and ESG investing. An IOSCO report enumerates the findings of the survey and related research; the fundamental recurring challenges in ESG and sustainable investing; the relevant frameworks used to understand those forms of investing; and IOSCO’s potential role in addressing those challenges. This article explores the key takeaways from the report. For more on IOSCO, see “Intention to Conduct Annual Surveys of Hedge Fund Managers Based on Updated Systemic Risk Data Categories” (Apr. 12, 2012).

HFLR Webinar Highlights Manager and Regulator Flexibility During Coronavirus Pandemic (Part One of Two)

The coronavirus pandemic has resulted in a public health crisis on a never-before-seen scale, requiring fund managers – as well as regulators – to adapt accordingly. In addition to working remotely and ensuring that their businesses remain operational during this time, fund managers have also faced increased communication demands; the need for flexibility with respect to regulatory filings and examinations; and potential expense-allocation issues. All of those matters must be deftly handled by a fund manager’s GC or CCO, whose role has only become more vital during the pandemic. To explore these and other issues, the Hedge Fund Law Report recently conducted a webinar featuring Stroock partner Michael Emanuel. This first article in a two-part series explores the portions of the webinar that addressed fund manager business continuity and disaster recovery plans, including the importance of ongoing adjustments to them and the need for GC and CCO proactivity; regulatory considerations, including factors influencing the attractiveness of SEC filing relief and best practices for communicating with regulators; and questions regarding allocation of expenses incurred during the pandemic. The second article will outline various ways that the pandemic has affected managers’ businesses, including with respect to operational due diligence, valuation, trading and side letters; management of third-party service providers; and cybersecurity considerations. See “Key Considerations for Private Fund Investors Navigating the Coronavirus Crisis” (Apr. 23, 2020).

Companywide Work From Home: Six Cybersecurity Considerations

With the coronavirus pandemic shifting employees who normally work in offices to remote working, cybersecurity threats – already a significant issue for remote employees – have intensified. Hackers are taking advantage of the thirst for information about the virus, as well as the increased risks associated with employees working from home environments. During a recent webinar hosted by the Hedge Fund Law Report’s sister service – the Cybersecurity Law Report – BlackCloak founder and CEO Dr. Christopher Pierson discussed new and existing cyber threats, as well as measures that chief information security officers and chief privacy officers should be implementing to mitigate them. This article summarizes the discussion. A complimentary recording of the webinar is available here. For more on cybersecurity, see “SEC Review of Cybersecurity Finds Gains Since 2014, but Cites Gaps in Training and Compliance” (Aug. 24, 2017).

Fund Formation Lawyer Michael Newell Joins Cadwalader in London

Cadwalader announced that Michael Newell has joined the firm’s London office as a partner in the financial services group. Newell focuses on the formation of hedge, private equity, real estate, credit and venture capital funds, and he has extensive experience advising the asset management industry, particularly on the establishment and reorganization of onshore and offshore collective investment vehicles. For perspectives from in-house and private practice from Cadwalader special counsel Garret Filler, see our two-part series: “Hedge Fund Culture, Law Firm Selection and Counterparty Risk” (Aug. 11, 2016); and “Family Offices, Broker-Dealer Registration Issues and Impact of Capital, Liquidity and Margin Requirements” (Aug. 25, 2016).