Jun. 4, 2020

Suspending Withdrawals: When and How to Lift the Suspension (Part Three of Three)

When a fund manager suspends withdrawals or redemptions by investors in its fund, the goal is usually to lift the suspension eventually and as soon as is reasonably practicable given the circumstances that led to it. A suspension is essentially a pause, with the alternative being liquidation of the fund. There are factors, however, that a manager should consider when deciding when and how to lift a suspension. Moreover, managers should take certain steps now to prepare for possible suspensions in the future – and not wait until conditions become dire. This three-part series explores the process of suspending withdrawals. This third article explains the process for lifting a suspension and actions managers should take today to prepare for if they should need to consider a suspension in the future. The first article discussed 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 examined the process by which a fund manager may suspend withdrawals. See “Lock-Ups and Investor-Level Gates Prevalent in New Hedge Funds” (Mar. 23, 2017).

OCIE Risk Alerts on Reg BI and Form CRS: Key Takeaways for Broker-Dealers and Advisers (Part Two of Two)

Broker-dealers and investment advisers that are subject to Form CRS and Regulation Best Interest (Reg BI) must comply with those new rules by June 30, 2020. To aid in firms’ compliance efforts, the SEC’s Office of Compliance Inspections and Examinations (OCIE) recently issued a pair of risk alerts (Risk Alerts) on post‑June 30 examinations focusing on compliance with Reg BI and Form CRS. According to the SEC, the purpose of the Risk Alerts is to provide registered advisers and broker-dealers with “information about the scope and content of initial examinations after the compliance date.” OCIE’s goal is “to empower firms to assess their level of preparedness as the compliance date nears,” note the Risk Alerts. This second article in a two-part series provides key takeaways from the Risk Alerts for broker-dealers and investment advisers. The first article discussed the key provisions of the Risk Alerts, as well as the status of the June 30 compliance deadline. See “The SEC’s Response to the Coronavirus Pandemic and Its 2020 Exam Priorities” (May 14, 2020).

Paul Hastings Attorneys Discuss Fund Governance and Management, Valuation and Line of Credit Issues Arising Out of the Coronavirus Pandemic (Part One of Two)

A recent program sponsored by Women in Funds took a close look at the critical issues that fund managers are facing while navigating the disruptions and market turmoil caused by the coronavirus pandemic and offered practical guidance on navigating those issues. Laura Tucker Schnaidt, founder and CEO of Women in Funds, introduced the panel, which featured Paul Hastings partner Ira P. Kustin, counsel Runjhun Kudaisya and associate Alexandra Marghella. This two-part series presents the key points raised by the speakers. This first article outlines the panelists’ views on fund governance, investor relations, fiduciary duty, board meetings, valuation and line of credit issues. The second article will cover their perspectives on the issues for open-end, closed-end and registered funds. For our coverage of another event sponsored by Women in Funds, see “SEC Commissioner Peirce Shares Views on Gender Diversity, Shareholder Issues, Cryptocurrency and Her SEC Dissents” (May 30, 2019).

AIMA Report Outlines Adoption, Challenges and Prospects for Use of Alternative Data by Hedge Fund Managers

As the availability and volume of new types of data skyrockets, many hedge fund managers are adopting a “quantamental” approach to investing that combines fundamental investment analysis with “a more quantitative approach,” according to a recent report (Report) issued by the Alternative Investment Management Association (AIMA) in conjunction with global fund service provider SS&C Technologies Holdings, Inc. The Report enumerates the results of AIMA’s survey of 100 hedge fund managers, which gauged their perspectives on alternative data sources, the challenges of using alternative data and the prospects for more widespread adoption. It also offers practical guidance for managers considering using alternative data. This article outlines the key takeaways from the Report. For additional industry insights from AIMA, see “Survey Identifies Drivers and Obstacles for Sustainable Investing” (Apr. 2, 2020); “AIMA Survey Examines Evolution in the Ways That Managers Align With Investors” (Nov. 7, 2019); and “A Recap of AIMA’s 2019 Global Policy & Regulatory Forum” (May 23, 2019).

Direct Lending Funds: Five Structures to Mitigate Tax Burdens for Various Investor Types (Part Two of Two)

Fund managers must balance competing tax and regulatory concerns when structuring direct lending funds for the benefit of different classes of U.S. and non-U.S. investors. There is no one-size-fits-all solution, and to that end, a recent webinar hosted by Strafford CLE Webinars that featured Sadis & Goldberg partners Alex Gelinas, Steven Huttler and Daniel G. Viola discussed the advantages and disadvantages of several different structures used by managers for direct lending funds. This second article in a two-part series analyzes how different fund structures will affect the tax concerns of U.S. investors, U.S. tax-exempt investors and non‑U.S. investors. The first article provided the panelists’ thoughts on using closed-end, open-end and hybrid structures for direct lending funds, as well as on managing regulatory compliance concerns. For more on private credit, see “ACA Panel Examines Compliance Issues Faced by Credit Managers” (Nov. 15, 2018); and “Ropes & Gray Survey and Forum Consider Credit Fund Structures, Leverage, Conflicts of Interest and Challenging Environment (Part Two of Two)” (Jul. 26, 2018).

Regulatory and Compliance Counsel Chuck Daly Joins Sidley Austin

Chuck Daly joined Sidley Austin’s New York office as counsel in its investment funds group. Daly advises traditional and alternative investment advisers on regulatory compliance requirements; structures and programs; ongoing compliance monitoring; testing protocols; and regulatory exams and reviews. For further commentary from Daly, see “Are Hedge Fund Managers Receiving the Message? SEC Takes Steps to Drill Down on Electronic Communications (Part One of Three)” (Nov. 30, 2017); and “Avoiding Common Pitfalls Under the Custody Rule: Inadvertent Custody, Delivery Failures and GAAP Compliance (Part One of Two)” (Mar. 23, 2017).