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    Aug. 9, 2012

Considerations for Hedge Fund Managers Looking to Join Managed Account Platforms (Part Two of Two)

While hedge fund investors are principally concerned with generating returns on their capital, they have become increasingly concerned with protection of their capital, which has led to a rise in the popularity of managed accounts.  In contrast to commingled funds, managed accounts generally offer investors enhanced liquidity, transparency and control over their assets.  However, with the desire for exposure to various investment strategies and fund managers as well as the onerous cost of establishing stand-alone managed accounts, many hedge fund investors are turning to managed account platforms, which offer a cost-effective method of gaining exposure to myriad managers and strategies.  Additionally, many hedge fund managers have realized that there are benefits to offering their services through managed account platforms over and above the additional capital they can raise from investors.  This is the second article in a two-part series designed to describe what managed account platforms are and to highlight the considerations that managers should evaluate in determining whether to offer their services through such platforms.  This article covers: the three principal advantages of managed accounts versus commingled funds; the seven chief advantages of managed account platforms over stand-alone managed accounts; considerations for hedge fund managers evaluating whether to offer their services through a managed account platform; how managers should consider which platforms to join; and seven key issues for managers to negotiate with platform sponsors before joining a platform.  The first article in the series surveyed managed account platforms, describing the various structures used for platforms, the evolution of platforms and the process for adding a manager to a platform.  See “Considerations for Hedge Fund Managers Looking to Join Managed Account Platforms (Part One of Two),” Hedge Fund Law Report, Vol. 5, No. 30 (Aug. 2, 2012).

Structuring, Regulatory and Tax Guidance for Asia-Based Hedge Fund Managers Seeking to Raise Capital from U.S. Investors (Part One of Two)

U.S. hedge fund investors are continuously seeking attractive investment opportunities and are increasingly expanding their search to incorporate Asia-based hedge fund managers.  At the same time, Asia-based hedge fund managers are navigating the challenging capital raising environment by reaching beyond their borders to attract U.S. investors.  However, Asia-based fund managers seeking to attract capital from U.S. investors must contend with a plethora of U.S. and foreign regulations in raising and managing such capital.  As such, Asia-based fund managers must work closely with U.S., Cayman and local counsel to develop a cohesive and carefully thought out fund and management structure, intertwining the various regulatory requirements of the applicable jurisdictions, all of which must be adhered to by the fund manager, any sub-advisers and their respective affiliates.  This is the first in a two-part series of guest articles designed to help Asia-based fund managers navigate the challenges of structuring and operating funds to appeal to U.S. fund investors.  The authors of this article series are: Peter Bilfield, a partner at Shipman & Goodwin LLP; Todd Doyle, senior tax associate at Shipman & Goodwin LLP; Michael Padarin, a partner at Walkers; and Lu Yueh Leong, a partner at Rajah & Tann LLP.  This first article describes the preferred Cayman hedge fund structures utilized by Asia-based fund managers, the management entity structures, Cayman Islands regulations of hedge funds and their managers and regulatory considerations for Singapore-based hedge fund managers.  The second article in the series will detail a number of the key U.S. tax, regulatory and other considerations that Asia-based fund managers should consider when soliciting U.S. taxable and U.S. tax-exempt investors.

Considerations for Launching Qualified Investor Funds in Ireland: An Interview with Pat Lardner, Chief Executive of the Irish Funds Industry Association

The popularity of Undertakings for Collective Investment in Transferrable Securities (UCITS) funds as well as the impending effectiveness of the Alternative Investment Fund Managers (AIFM) Directive has heightened the popularity of Ireland as a domicile for organizing hedge funds and alternative retail funds.  In 2011, Ireland experienced net inflows of approximately €62 billion in assets in UCITS funds, approximately €50 billion more than the second-place domicile, representing 8 percent growth over 2010.  Additionally, according to figures from the European Fund and Asset Management Association and the Central Bank of Ireland (Central Bank), Ireland-domiciled non-UCITS funds have experienced considerable growth in recent years, up 35 percent in 2010; 15 percent in 2011; and 4.3 percent in the first quarter of 2012.  Assets in Ireland-domiciled non-UCITS funds are up from €200 billion in 2010 to €250 billion as of June 2012.  Additionally, as of June 2012, the number of qualified investor funds (QIFs) climbed to an all-time high of 1,420, and assets have grown to €182 billion.  In light of this growth and the consequent importance of Ireland as a hedge fund jurisdiction, the Hedge Fund Law Report recently interviewed Pat Lardner, Chief Executive of the Irish Funds Industry Association.  The general purpose of the interview was to enable Lardner to elaborate on considerations for hedge fund managers in establishing funds and managing investments and operations in Ireland.  In particular, our interview covered, among other things: the process for organizing a UCITS fund; the service provider and reporting requirements applicable to Irish UCITS funds; the comparative advantages and disadvantages of establishing UCITS funds in Ireland; measures taken to make Irish UCITS funds more attractive to Asian and Latin American investors; recent developments impacting the appeal of UCITS funds; common mistakes made in organizing UCITS funds; advice for managers establishing Irish UCITS funds; a description of the QIF regime and the organization and fund authorization process; who constitutes a “qualifying investor” eligible to invest in a QIF; governance, service provider, reporting and regulatory examination requirements applicable to QIFs; comparative advantages and disadvantages of the QIF regime; advice for fund managers looking to establish QIFs; the new SICAV corporate structure in Ireland; and various related topics.  This article contains the full transcript of our interview with Lardner.

SEC Flexes Enforcement Muscle with Respect to Stock Offering Abuses Involving Reverse Merger Company China Yingxia International and Settles Enforcement Actions with Hedge Fund Manager Peter Siris and Others

The Securities and Exchange Commission (SEC) has commenced civil enforcement proceedings against various individuals and entities involved in U.S. stock transactions involving China Yingxia International, Inc. (China Yingxia or Company), which went public via a 2006 reverse merger.  In one action, hedge fund manager Peter Siris (along with two affiliates) is accused of insider trading, acting as an unregistered broker and selling unregistered securities.  He is also accused of insider trading in the shares of a number of other small capitalization companies.  The SEC reports that he has settled those charges.  In a separate action, an investment relations firm employed by China Yingxia is accused of acting as an unregistered broker, and the company’s chief financial officer (CFO) is accused of fraud and a number of reporting violations.  The SEC has also entered into consent orders with three other individuals to resolve enforcement proceedings against them relating to their roles in the Company’s stock sales.  This article identifies the various players and their roles in China Yingxia’s capital markets activities; summarizes the charges against Siris, the CFO and the investment relations firm; and summarizes the settlements with the individuals.  See also “Questions Hedge Fund Managers Need to Consider Prior to Making Investments in Chinese Companies,” Hedge Fund Law Report, Vol. 4, No. 21 (Jun. 23, 2011).

McKinsey Analyzes Trends in the Mainstreaming of Alternative Investments and Outlines Strategic Imperatives for Traditional Asset Managers

McKinsey & Company (McKinsey) recently released a report analyzing current and future trends in the global alternative investment market.  The report is the culmination of a multi-year global research project on the alternative investments landscape.  McKinsey provides several insights of relevance to hedge fund managers that offer or are considering offering retail products, and concludes its report by outlining strategic imperatives for traditional asset managers seeking to win in the alternatives market.  This article summarizes highlights from McKinsey’s report, emphasizing findings of particular interest to hedge fund managers.

New Bermuda Regulations Facilitate the Marketing of Bermuda-Domiciled Funds to Japanese Retail Investors

On 18 December 2011, Bermuda’s Investment Funds Act, 2006 (Act), the legislation which provides the regulatory framework for the creation and operation of investment funds in Bermuda, was amended to create a new class of investment fund to be known as the “Specified Jurisdiction Fund.”  The purpose of the Specified Jurisdiction Fund classification is to permit the Ministry of Business Development and Tourism, in conjunction with the Bermuda Monetary Authority (BMA), and industry, to develop and issue, from time to time, “orders” which specifically recognize and compliment the regulatory requirements of foreign financial markets in which securities of a Bermuda-domiciled fund will be marketed.  On 8 June 2012, the Ministry of Business Development and Tourism, acting on the advice of the BMA, issued its first order under the amended Act targeting the Japanese retail market.  The order and related rules are designed to permit Bermuda-domiciled funds established pursuant to the order to be marketed to the Japanese public.  In this article, Elizabeth Denman, a counsel in the corporate department of the Bermuda office of Conyers Dill & Pearman, explains how hedge fund managers can use the order to market funds to the Japanese public.

Rothstein Kass Expands Family Office Group with the Addition of JDJ Resources Team

On August 8, 2012, Rothstein Kass announced that it has expanded its family office group with the addition of a team of 16 professionals from Boston-based JDJ Resources Corporation (JDJ).  See “Legal Mechanics of Converting a Hedge Fund Manager to a Family Office,” Hedge Fund Law Report, Vol. 4, No. 43 (Dec. 1, 2011).

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