Sep. 16, 2021

Private Funds Act’s Role in Enhancing and Modernizing the Cayman Islands’ Private Funds Industry

Although the Cayman Islands is known as a major international finance center, few people appreciate the sheer size and complexity of its funds landscape. More than 24,000 investment funds were registered with the Cayman Islands Monetary Authority as of the end of 2020, including 12,695 private funds. According to Cayman Finance, 70% of non‑U.S. domiciled alternative investment funds managed by SEC‑registered investment advisers are domiciled in the Cayman Islands. To accommodate the growth in its private funds industry and improve its oversight thereof, the Cayman Islands government enacted the Private Funds Act (PFA). Since it has gone into effect, the PFA has both modernized the Cayman Islands’ funds framework and imposed additional burdens on fund managers – some of which are required to be completed in the coming weeks. In a guest article, Laura da Ascenção, commercial director at TMF Group, details measures taken by the Cayman Islands government to enhance its regulatory approach; the impact of the PFA; key PFA requirements to which managers must adhere; and a forecast of what lies ahead for the Cayman Islands’ regulatory efforts. See “Navigating the Expanded Scope of the Cayman Private Funds Act” (Mar. 4, 2021).

Interest in Private Credit Remains Strong, According to ACC/PCFI Survey

The Alternative Credit Council (ACC), an affiliate of the Alternative Investment Management Association (AIMA), in collaboration with Private Credit Fund Intelligence (PCFI), recently issued the results of their survey of private credit (PC) investors’ appetite in the second half of 2021 for alternative investments in general and PC in particular. Notably, ACC/PCFI found that demand for PC remains strong, with the overwhelming majority of respondents satisfied with the performance of PC investments in the first half of this year and more than one-third planning to increase allocations going forward. This article examines the survey’s key findings, with commentary from James Sivyer, head of investor research at PCFI Insights, and Nick Smith, director of PC at the ACC. For more from AIMA, see our two-part coverage of a recent AIMA global hedge fund study: “Most Hedge Fund Managers Met or Exceeded Targets Last Year” (May 13, 2021); and “Manager and Investor Interest in ESG Is Growing” (May 20, 2021); as well as “Hedge Fund Industry Remains Agile and Resilient, According to Recent KPMG/AIMA Survey” (Oct. 8, 2020).

District Court Dismisses Whistleblower Retaliation Claim

The U.S. District Court for the Southern District of New York recently dismissed a whistleblower anti-retaliation action brought against an investment manager and certain affiliates for failure to state a claim. The person who brought the claim alleged that he was a whistleblower under the relevant provisions of Section 21F of the Securities Exchange Act of 1934 because he had provided information to the SEC on a conference call during an SEC investigation. The court dismissed the complaint on the grounds that the party was not a whistleblower for purposes of the anti-retaliation provisions because he had not provided information to the SEC in the requisite manner. This article analyzes the circumstances leading up to the lawsuit and the court’s decision, with insights from Anne E. Beaumont, partner at Friedman Kaplan Seiler & Adelman, and Philip Moustakis, counsel at Seward & Kissel. For coverage of a similar action, see “Former Employee Files Dodd-Frank Whistleblower Suit Against Vertical Capital” (Dec. 18, 2014).

Trends in Hot‑Button Terms in Side Letter Negotiations, Including MFNs and ESG Considerations (Part Two of Two)

Side letters are sometimes cloaked in a veil of secrecy, as their purpose is to allow fund managers and LPs to hide certain negotiated terms from other investors in a commingled vehicle. That can make it comparatively difficult to discern market trends in side letters, including what types of issues are of the greatest concern to parties and where negotiations currently land. Those trends and administrative issues posed by side letters were addressed at a recent Practising Law Institute panel moderated by Skadden partner Anna Rips and featuring Alison Horton, managing director and legal counsel at Davidson Kempner Capital Management; Nicole Restivo, chief operating officer, GC and CCO at Key Square Capital Management; and Fola Adamolekun, executive director and assistant GC at J.P. Morgan Asset Management. This second article in a two-part series describes some of the difficulties presented by most favored nation provisions in side letters and some current hot topics in negotiations, including information sharing and environmental, social and governance investing. The first article explained certain benefits and challenges with using form side letters in negotiations; difficulties funds of funds face in simultaneous negotiations; and administrative challenges fund managers need to overcome. See our three-part series on managing side letters: “Importance of Effective Negotiation” (Nov. 19, 2020); “Assigning Responsibility and Effective Documentation” (Dec. 3, 2020); and “Tracking Triggers, Testing and Addressing MFN Provisions” (Dec. 17, 2020).

SEC Resolves Enforcement Proceedings Over Late Filing and Delivery of Form CRS

In June 2019, the SEC adopted Form CRS, which requires investment advisers and broker-dealers with retail clients to provide plain-English disclosures to those clients about the critical terms of the firm’s relationship with its clients. Firms subject to that requirement had to file an initial Form CRS with the SEC or FINRA, and begin delivering the form to prospective clients, by June 30, 2020. They also had to deliver the form to existing clients by July 30, 2020. The SEC recently resolved enforcement proceedings against 21 investment advisers and six broker-dealers that allegedly failed to comply with the Form CRS filing and delivery requirements in a timely manner. This article discusses the Form CRS filing requirements, the alleged compliance failures and the terms of the settlement orders. See “A Roadmap for Preparation and Delivery of New Form CRS” (Mar. 19, 2020).