Dec. 13, 2012

When and How Can Hedge Fund Managers Permissibly Disguise the Identities of Their Hedge Funds in Form ADV and Form PF?

Historically, hedge fund managers generally have not been required to disclose information about their funds to regulators or the public.  Hedge funds were excluded from the definition of “investment company” in the Investment Company Act of 1940 and therefore did not have to file registration statements, as mutual funds do.  Many hedge fund managers were not required to register as investment advisers and therefore did not have to file Form ADV, which contains fund information.  And the U.S. had no analogue to the U.K. FSA’s periodic reports on systemic risk posed by hedge funds.  Hedge funds are still excluded from the investment company definition, but many managers now must register and file Form ADV.  See “How Can Hedge Fund Managers Rebut the Presumption of Materiality of Certain Disciplinary Events in Form ADV, Part 2?,” Hedge Fund Law Report, Vol. 5, No. 1 (Jan. 5, 2012).  And, as the industry well knows, the U.S. has implemented its own version of systemic risk reporting by private fund managers via Form PF.  See “Assumptions to Consider in Completing Form PF Effectively: Experiences from First Filers,” Hedge Fund Law Report, Vol. 5, No. 39 (Oct. 11, 2012).  Form ADV requires hedge fund managers to disclose significant fund information to regulators and the public, and Form PF requires managers to disclose voluminous and detailed fund information to regulators.  However, the instructions to both forms now allow a manager to preserve the anonymity of its private funds by using a code or designation to identify the funds referenced in those forms.  Some well-known hedge fund managers reportedly have taken advantage of this new opportunity, and there is speculation that more managers will do so.  Nonetheless, the relief provided in the instructions is conditioned on satisfaction of delineated obligations.  This article provides an overview of key considerations for fund managers that wish to mask the identities of their private funds in Form PF and Form ADV filings.  Specifically, this article outlines some of the reasons why hedge fund managers may wish to shield the identities of their private funds in Form ADV and Form PF; the circumstances under which hedge fund managers can mask the identity of their private funds; how fund managers can go about disguising the identities of their private funds; whether such masking will raise suspicion from regulators and investors; and best practices for managers that wish to implement a masking strategy.

NFA Workshop Details the Registration and Regulatory Obligations of Hedge Fund Managers That Trade Commodity Interests

The National Futures Association (NFA) held a workshop (workshop) in New York on October 23, 2012 to help commodity pool operators (CPOs) and commodity trading advisors (CTAs) – including hedge fund managers that trade commodity interests – determine whether they must register with the U.S. Commodity Futures Trading Commission and the NFA, and to understand their regulatory obligations if they are required to do so.  Topics discussed during the workshop included popular CPO and CTA registration exemptions; reporting requirements for registrants, including those related to disclosure documents and financial reports; requirements related to promotional materials and sales practices for registrants; and the NFA audit process.  This article provides feature length coverage of the key topics discussed during the workshop.

Understanding the Regulatory Regime Governing the Use of Social Media by Hedge Fund Managers and Broker-Dealers

Social media has been increasingly adopted, if not embraced, by businesses, including investment advisers (such as hedge fund managers) and broker-dealers (which may be affiliates of certain hedge fund managers).  The question that arises is how does social media fit into the regulatory regime governing investment advisers and broker-dealers?  The question is increasingly important in light of both the forthcoming rule-making by the Securities and Exchange Commission (SEC) pursuant to the Jumpstart Our Business Startup Act (JOBS Act) as well as the SEC’s recent release of a National Examination Risk Alert entitled “Investment Adviser Use of Social Media” (Alert).  The Financial Industry Regulatory Authority, Inc. (FINRA) has also issued regulatory notices within the last two years providing guidance on the use of social media by broker-dealers.  In a guest article, Ricardo W. Davidovich, a partner at Tannenbaum Helpern Syracuse & Hirschtritt LLP, and Karina Bjelland, a managing consultant in the Financial Institutions Practice at Berkeley Research Group, LLC, summarize the relevant regulatory guidance from the federal securities laws, the JOBS Act, the Alert and the FINRA rules and notices to members.  Bjelland also recently participated in a webinar covered in the HFLR.  See “How Can Fund Managers Address the Regulatory, Compliance, Privacy and Ethics Issues Raised by Social Media?,” Hedge Fund Law Report, Vol. 5, No. 44 (Nov. 21, 2012).

Greenwich Associates and Johnson Associates Issue Report on Asset Management Compensation Trends in 2012

Greenwich Associates, an international research-based consulting firm in institutional financial services, in cooperation with Johnson Associates, Inc., a boutique financial services compensation consulting firm, have issued their 2012 U.S. Asset Management Compensation Report.  The Report provides an overview of 2012 compensation levels and trends; discusses differences in compensation between portfolio managers, traders and analysts at hedge fund managers and other asset managers; considers the impact of new regulations on compensation; and discusses changes in compensation structures.  This article summarizes key points from the Report.  See also “Compensation Survey by Greenwich Associates and Johnson Associates Highlights Trends in Compensation and Best Practices for Hedge Fund Managers and Other Investment Professionals,” Hedge Fund Law Report, Vol. 4, No. 46 (Dec. 21, 2011).

SEI Report Highlights Challenges Faced by Fund of Hedge Funds Industry and Recommends Improvements

In December 2012, SEI, through its subsidiary, SEI Knowledge Partnership, released the results of an online survey of senior managers at 220 institutional investors, investment consultants and fund of hedge fund (FOHF) managers concerning their views of the fund of funds business.  Two-thirds of the investors and consultants and more than half of the managers surveyed agreed that FOHFs “must reinvent their business model in order to survive.”  SEI’s sobering report highlights problems afflicting the FOHF industry and proposes several ways for the industry to adapt.  SEI found a “marked disconnect between investor/consultant and manager responses on some key issues. . . .”  This article summarizes SEI’s report.

British Virgin Islands High Court Issues Landmark Decision Affecting the Distribution Rights of Redeemed Versus Continuing Investors in a Liquidating Hedge Fund

On November 16, 2012, the Commercial Division of the High Court in the British Virgin Islands issued a landmark decision bearing on the distribution rights of redeemed versus continuing investors in a hedge fund in liquidation.  Among other things, the decision provides insight to a hedge fund investor who must evaluate whether to redeem its investment in a fund that is expected to liquidate in the near future.  This article summarizes the factual background and legal analysis of the decision.  See also “Seventh Circuit Approves Federal Receiver’s Hedge Fund Liquidation Plan Subordinating Priority Rights of Redeeming Investors,” Hedge Fund Law Report, Vol. 3, No. 50 (Dec. 29, 2010).

Andrew Hulsh Joins Dechert’s Corporate Practice in New York

On December 10, 2012, international law firm Dechert LLP announced that Andrew Hulsh has joined the firm as a corporate partner in New York.  For insight from other Dechert partners recently published in the Hedge Fund Law Report, see “Rajaratnam Prosecutor and Dechert Partner Jonathan Streeter Discusses How the Government Builds and Prosecutes an Insider Trading Case against a Hedge Fund Manager,” Hedge Fund Law Report, Vol. 5, No. 45 (Nov. 29, 2012); and “Navigating the Patchwork of Global Insider Trading Regulations: An Interview with Adam Wasserman of Dechert,” Hedge Fund Law Report, Vol. 5, No. 38 (Oct. 4, 2012).

SS&C Appoints Paul Igoe General Counsel

On December 10, 2012 SS&C Technologies Holdings, Inc., a global provider of financial services software and software-enabled services (including hedge fund administration), announced that Paul G. Igoe has been appointed senior vice president, general counsel and corporate secretary.  See also “Who Are the Top Ten Hedge Fund Administrators by Assets Under Administration?,” Hedge Fund Law Report, Vol. 5, No. 38 (Oct. 4, 2012).