May 21, 2020
May 21, 2020
Suspending Withdrawals: The 2008 Crisis Versus the 2020 Pandemic (Part One of Three)
During the current coronavirus pandemic, the media has reported that various funds have suspended withdrawals or redemptions by investors. The fact that the managers of those funds felt compelled to take such extreme action may cause flashbacks to the 2008 financial crisis, when certain fund managers took similar steps. The industry has changed, however, since then. For example, fund managers have more options now to help them avoid the need for suspensions, such as investor-level gates, special purpose vehicles and redemptions in kind. In addition, even if a suspension does become necessary, it may no longer carry the same stigma it previously did. This three-part series explores the process of suspending withdrawals. This first article discusses suspensions during the 2008 financial crisis compared to the current pandemic; reasons a fund manager may consider imposing a suspension; the downsides of doing so; and the SEC’s view of suspensions. The second article will examine the process by which a fund manager may suspend withdrawals, and the third article will explain the steps for lifting a suspension along with actions that managers should be taking now to prepare for the possibility of suspending withdrawals in the future. See “Schulte Partner Stephanie Breslow Addresses Gates, Side Pockets, Secondaries, Co‑Investments, Redemption Suspensions, Funds of One and Fiduciary Duty (Part One of Two)” (Dec. 4, 2014).
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Seward & Kissel Attorneys Discuss Recent SEC Exam Experiences and Regulatory Developments
Despite the unprecedented disruptions caused by the coronavirus pandemic, the SEC remains vigilant and active and is particularly attuned to the risk of market abuse, according to the speakers at a recent Seward & Kissel webinar. Philip Moustakis, counsel at Seward & Kissel and former Senior Counsel at the SEC, and counsel David Tang discussed recent and anticipated SEC examination activity; concerns over business continuity plans, disclosure, liquidity management and valuation; SEC filing and custody relief for advisers affected by the pandemic; and the new Form CRS. This article highlights the key portions of the presentation. For additional insights from Moustakis, see our two-part discussion with him: “Digital Assets Space” (Mar. 7, 2019); and “Enforcement Trends and Whistleblowers” (Mar. 14, 2019). For further commentary from Tang, see our two-part series “Lessons Learned From How Advisers Dealt With the October 2017 Amendments to Form ADV”: Part One (Feb. 7, 2019); and Part Two (Feb. 14, 2019).
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Recent SEC Liquidity Relief May Benefit Alternative Mutual Funds
The coronavirus pandemic has created stresses on funds not seen in more than a decade. Not only have social distancing and work-from-home orders made routine regulatory compliance a challenge, but also, unprecedented market volatility has made it difficult for funds to manage liquidity. That can be a particularly serious concern for registered investment funds – including alternative mutual funds – which offer daily liquidity to their investors. In recent no-action letters and a temporary exemptive order, the SEC gave managers of registered funds additional flexibility to obtain short-term funding during the crisis, including through the expanded ability to sell assets to affiliates and to participate in inter-fund borrowing and lending facilities. A recent Davis Polk program offered an in-depth look at the temporary relief offered by the SEC and its implications for fund advisers and boards of directors. The program featured Davis Polk partners Nora M. Jordan and Gregory S. Rowland, along with counsel Aaron Gilbride. This article synthesizes their insights. For discussion of other regulatory relief during the coronavirus pandemic, see “ACA Briefing: Regulatory Responses to Coronavirus Pandemic and Best Practices for Business Continuity and Compliance” (Apr. 16, 2020).
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HFLR Webinar Explores Business Issues Arising From Coronavirus Pandemic (Part Two of Two)
Beyond ensuring that their employees can function in a remote-work environment, fund managers have had to face various issues relating to the operation of their businesses. As the financial markets have fluctuated and various jurisdictions have imposed new restrictions, fund managers have faced complications with their trading strategies and valuation methodologies. In addition, managers must pay increasing attention to managing third-party service providers and ensuring their – and the managers’ own – cybersecurity is ironclad. To explore these and other issues, the Hedge Fund Law Report recently conducted a webinar featuring Stroock partner Michael Emanuel. This second article in a two-part series outlines 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. The first article explored fund manager business continuity plans and disaster recovery plans, regulatory considerations and questions regarding allocation of expenses incurred during the pandemic. See our three-part series “How Fund Managers Can Withstand the Coronavirus Pandemic”: Form ADV Filing Relief, Investor Communications and Fund Valuation (Apr. 2, 2020); Marketing Disruptions, Key Person Clauses and Cybersecurity Concerns (Apr. 9, 2020); and Business Continuity and Other Operational Risks (Apr. 16, 2020).
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After More Than a Decade at the SEC, G. Jeffrey Boujoukos Rejoins Morgan Lewis
G. Jeffrey Boujoukos has returned to Morgan Lewis as a partner and the leader of the securities enforcement practice after more than ten years at the SEC. Boujoukos will be working for brokers, investment advisers, hedge funds and public companies on securities enforcement defense, internal investigations and litigation. For commentary from other Morgan Lewis partners, see “Non‑Disclosure Provisions in Settlement Agreements in the Wake of #MeToo” (Sep. 26, 2019); and “Current Trends and Issues in Hedge Fund Direct Lending” (Aug. 15, 2019).
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