Apr. 22, 2021

Former AQR Counsel Discusses Regulatory Initial Margin Requirements

Lowenstein Sandler recently announced that Boris Liberman has joined the firm as a partner in the investment management group. Previously, Liberman served as senior counsel for 12 years at AQR Capital Management LLC. From his years in-house at that global investment management firm, as well as his time in private practice representing funds and private equity clients, Liberman gained specialized knowledge of relevant rules and regulations impacting trading documentation globally. The Hedge Fund Law Report recently spoke to Liberman in connection with his move. In this article, Liberman discusses his new position, his experience at AQR, the upcoming deadlines for the regulatory initial margin requirements and steps impacted fund managers should take now to comply. For insights from another Lowenstein partner, see our three-part series on encryption for fund managers: “Basics of Its Use and Challenges for Implementation” (Feb. 27, 2020); “Legal and Regulatory Framework” (Mar. 5, 2020); and “Policies and Procedures; Role of Legal and Compliance; and Third Parties” (Mar. 12, 2020).

Division of Examination’s 2021 Exam Priorities: Perennial Focus Areas for Private Fund Managers (Part Two of Two)

The SEC’s Division of Examinations recently released its 2021 Examination Priorities (Priorities). The Priorities identify a broad range of areas that are directly relevant to private fund managers. As a result, exams of private fund managers – and referrals from Examinations to the SEC’s Division of Enforcement – may increase. In a two-part guest series, Jane Jarcho, Sarah Curran and Drew Weilbacher from Promontory Financial Group summarize the topics discussed in the Priorities and include their expectations regarding specific areas of focus, documents that an exam team might request and potential individuals who are likely to be interviewed. This second article reviews perennial focus areas in private fund managers’ exams. The first article addressed new or emerging focus areas. See “Focus Areas for Private Fund Managers From OCIE’s 2020 Exam Priorities” (Feb. 27, 2020).

Regulatory, Business and Tax Considerations for Converting a Mutual Fund to an ETF

Over the past two decades, the number of exchange-traded funds (ETFs) has grown steadily, and in recent years, actively managed ETFs have been gaining traction. In 2019, the SEC adopted Rule 6c‑11 (ETF Rule), which modernized the regulation of ETFs and facilitated conversion of mutual funds (MFs) into ETFs. A recent K&L Gates seminar explored the implications of the ETF Rule and provided a roadmap for converting an MF into an ETF, including the relevant regulatory, business and tax considerations. Although the program focused on MF conversions, many of the principles discussed are equally relevant to a private fund manager considering converting a hedge or other fund to an ETF. The program featured K&L Gates partners Joel D. Almquist, Stacy L. Fuller and Richard F. Kerr, as well as Ben Slavin, global head of ETFs, asset servicing, at BNY Mellon. This article distills their insights. See “Mechanics of a Counterintuitive Conversion of a Hedge Fund to a Mutual Fund” (Jul. 25, 2013).

SBAI Responsible Investment Policy Framework: Three Key Considerations for Fund Managers (Part Two of Two)

Growing numbers of institutional investors expect fund managers to develop and disclose their approaches to responsible investments (RI), said the Standards Board for Alternative Investments (SBAI) in its recently released Responsible Investment Policy Framework (Framework). The purpose of the Framework is to offer “a non-prescriptive framework for alternative investment managers to develop an approach to RI and to document this approach in an RI policy,” according to SBAI. This second article in a two-part series covers governance, disclosure and measurement, as well as three key considerations for fund managers. The first article explained how to use the Framework, identified five general approaches to RI and discussed four approaches to incorporating RI principles into investment strategies, with additional insight from Maria Long, SBAI content/research director. For more from SBAI, see our two-part series on avoiding parallel fund conflicts: “New SBAI Standards and Case Study Provide Guidance for Mitigating Conflicts” (Jun. 11, 2020); and “Common Challenges for Hedge Fund and Credit Strategies” (Jun. 18, 2020).

Acting Director of SEC Division of Corporate Finance Explores SPAC Disclosure Liability

In the past six months, there has been a surge in the use and popularity of special purpose acquisition companies (SPACs) in the U.S. securities markets, which has been driven, at least in part, by strong demand from the hedge funds sector. With the unprecedented surge has come heightened scrutiny, and new issues with both standard and innovative SPAC structures keep surfacing. In connection with the above, SEC staff continue to examine filings and disclosures made by SPACs and their targets, seeking clearer disclosure and providing guidance to registrants and the public, noted John Coates, Acting Director of the SEC Division of Corporate Finance in a recent public statement. Those efforts are to enable informed investment and voting decisions about these transactions. In his remarks, Coates explored the SPAC structure; the difference between its ultimate business combination and a traditional IPO; legal liability related to disclosures in SPAC transactions; the application of the safe harbor in the Private Securities Litigation Reform Act to SPACs; and a recommended path forward for the SEC in this area. His remarks provide valuable insight to any fund manager that is investing – or considering an investment – in SPACs. This article analyzes Coates’ statement. For coverage of recent SEC speeches, see “Acting SEC Chair Outlines Commission’s Approach to ESG” (Apr. 1, 2021); and “Can Reddit's Influence Be Regulated? SEC Commissioner Discusses Recent Market Volatility” (Mar. 18, 2021).