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    Jun. 17, 2011

How Much Are In-House Hedge Fund Marketers Paid, and How Will Recent Developments in New York City and California Lobbying Laws Impact the Compensation Levels and Structures of In-House Hedge Fund Marketers (Part Three of Three)

This is the third article in our three-part series on how recent changes to the New York City and California lobbying laws will impact the compensation and activities of third-party and in-house hedge fund marketers.  The first article in this series described the relevant legal changes in depth and included a chart comparing analogous provisions of the New York City and California laws.  See “Recent Developments in New York City and California Lobbying Laws May Impact the Activities and Compensation of In-House and Third-Party Hedge Fund Marketers (Part One of Three),” Hedge Fund Law Report, Vol. 4, No. 6 (Feb. 18, 2011).  The second article in the series analyzed the implications of the lobbying law changes for third-party hedge fund marketers.  Notably, the second article examined how hedge fund managers may structure new agreements with third-party marketers, or restructure existing agreements, in light of the ban on “contingent compensation” under the New York City and California laws.  That second article also discussed representations, warranties and covenants called for by the revised laws; due diligence consequences of the revised laws; and – most provocatively – why the lobbying law changes may be moot in light of a broader macro trend impacting third-party marketers.  See “How Can Hedge Fund Managers Structure the Compensation of Third-Party Marketers in Light of the Ban On ‘Contingent Compensation’ Under New York City and California Lobbying Laws? (Part Two of Three),” Hedge Fund Law Report, Vol. 4, No. 13 (Apr. 21, 2011).  This article is the third in our lobbying series, and focuses on the implications of the lobbying law changes for in-house hedge fund marketers.  In particular, this article details: the typical compensation structures of in-house hedge fund marketers; how much in-house hedge fund marketers are paid, including specific numbers based on conversations with executive search professionals with relevant experience; whether in-house marketers fall within the scope of the California and New York City lobbying laws; specific strategies for structuring or restructuring the compensation of in-house marketers based on the lobbying law developments; exemptions from the “lobbyist” designation that may be available to in-house marketers; a discussion of relevant guidance provided by the California Fair Political Practices Commission in a recent letter; and the related issue of registration of an in-house hedge fund marketing department as a broker, and of the members of such a department as associated persons of a broker.

Insider Trading and Debt Securities: Practical Tips for Hedge Funds in Coping with Regulatory Enforcement

Recent events have brought increased regulatory and judicial focus on the world of debt instruments.  The stock market crash of the fall of 2008 was largely precipitated by the implosion of debt instruments linked to sub-prime mortgages loans.  These market crises put into relief the relative size and power of the bond markets.  The equity markets were, at least as of mid-2009, less than half the size of the debt markets, $14 trillion versus $32 trillion in the U.S. and $44 trillion versus $82 trillion globally.  Perhaps understanding this, since 2008, the SEC has begun new, unprecedented investigations of insider trading in the realm of debt instruments.  In a guest article, Mark S. Cohen, Co-Founder and Partner at Cohen & Gresser LLP, and Lawrence J. Lee, an Associate at Cohen & Gresser, discuss: hedge funds and the debt markets; the law of insider trading; potential sources of inside information; relationships that are likely to give rise to duties of confidentiality in connection with a debt trading strategy; types of insider trading cases concerning debt securities and credit, including discussions of specific cases involving derivatives, bankruptcy, distressed debt, government bonds and bank loans; and practical steps that hedge fund managers can take to avoid insider trading violations when trading various types of debt and debt-related instruments.

Does a Hedge Fund Manager’s Contractual Obligation to Pay Fees to a Third-Party Marketer Survive the Closing or Restructuring of the Manager?

In 2005, plaintiffs Hedge Fund Capital Partners, LLC and Cyprian Consulting LLC entered into an “introduction agreement” with hedge fund manager Thor Asset Management, Inc. (Thor).  In exchange for referrals of prospective investors, Thor promised to pay plaintiffs 20 percent of any management and performance fees earned by Thor from investors introduced by plaintiffs.  Relations soured when, in 2009, Thor’s principals formed co-defendant Systematic Alpha Management, LLC (SAM) and SAM apparently took over Thor’s operations.  Plaintiffs sued, claiming that SAM was Thor’s “alter ego” and that Thor and SAM had failed to pay the full amount of introduction fees owed under plaintiffs’ agreement with Thor.  They claimed that, among other things, Thor failed to pay any fees at all on certain introductions, failed to pay fees on subsequent investments made by investors introduced by plaintiffs and shifted investors into new funds to avoid paying fees to plaintiffs.  SAM moved to dismiss the entire complaint for failure to state a cause of action.  The trial court denied SAM’s motion in its entirety and the Appellate Division affirmed the order in part.  We summarize the plaintiffs’ claims and the subsequent proceedings.

New Rothstein Kass Study Explains the “Consultative” Approach to Marketing to Single-Family Offices and the Importance of That Approach for Smaller Hedge Fund Managers

A recently published study by Rothstein Kass, Forbes Private Capital Group and Forbes Insights defined a single-family office; outlined the three attributes of single-family offices that make them attractive sources of capital for hedge funds, especially smaller hedge funds; emphasized the importance of the Executive Director; distinguished between two broad categories of single-family offices; highlighted the marketing mistakes frequently made by hedge fund managers in marketing to single-family offices; and outlined a viable and realistic strategy that hedge fund managers can use to market to single-family offices.  In general, with large investors increasingly allocating to large hedge fund managers, single-family offices are filling a capital void that is particularly important for start-up and smaller hedge fund managers.  See generally “Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part Two of Two),” Hedge Fund Law Report, Vol. 4, No. 12 (Apr. 11, 2011).  This article summarizes the key findings of the study.

Larch Lane Advisors LLC Appoints David Katz as President and Chief Operating Officer

On June 14, 2011, investment advisory firm Larch Lane Advisors LLC announced the appointment of David Katz as President and Chief Operating Officer.  The firm manages commingled funds and customized portfolios for clients in two distinct investment strategies: constructing diversified portfolios of hedge funds and negotiating and structuring seed investments in hedge funds.  See “How to Structure Exit Provisions in Hedge Fund Seeding Arrangements,” Hedge Fund Law Report, Vol. 3, No. 40 (Oct. 15, 2010).  In a prior issue of the Hedge Fund Law Report, we published an interview with Stephen A. McShea, General Counsel & Chief Compliance Officer at Larch Lane, on preparing for and responding to SEC examinations.  See “What Do Hedge Fund Managers Need to Know to Prepare For, Handle and Survive SEC Examinations?  (Part Two of Three),” Hedge Fund Law Report, Vol. 4, No. 5 (Feb. 10, 2011).

Seasoned ERISA Attorney Joins Boutique Investment Management Law Firm Budinger Hunt PC

On May 31, 2011, boutique investment management law firm Budinger Hunt PC announced that Anthony A. Dreyspool, a seasoned ERISA attorney, has joined the firm.  See “Implications of the DOL’s Proposed Expanded Definition of ‘Fiduciary’ for Hedge Fund Managers, Placement Agents, Valuation Firms and Pension Consultants,” Hedge Fund Law Report, Vol. 3, No. 43 (Nov. 5, 2010). 

Jena Bjornson Joins Blue River Partners as a Managing Director

Blue River Partners, LLC recently announced the addition of Jena Bjornson as a Managing Director primarily responsible for the management of Blue River’s clients’ compliance programs.

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