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    May 16, 2013

A Practical Guide to AIFMD Reporting for Non-U.S. Fund Managers: Reporting Under AIFMD versus Form PF

With the arrival of May, all U.S. fund managers who are required to file Form PF will have filed at least once, and some will have filed Form CPO-PQR as well.  Both forms will have assumed their positions as fixtures on the regulatory landscape.  There is scant time for rest, however, as the Alternative Investment Fund Managers Directive (AIFMD) in Europe looms on the horizon – even for U.S. managers.  The AIFMD is Europe’s response to the financial crisis of 2008 and is analogous to Title IV of the Dodd-Frank Act in the U.S.  The AIFMD is more broad-ranging in scope, but this article focuses only on one key aspect: the imposition of standardized reporting requirements for Alternative Investment Fund Managers.  Owing to the fact that Forms PF and CPO-PQR were developed in consultation with European and other global regulatory authorities, there are many similarities across the forms.  However, there are also significant differences.  U.S. fund managers required to report under the AIFMD will not be able to simply recycle information reported on Form PF or Form CPO-PQR for AIFMD reporting purposes.  Instead, they must reevaluate, recalculate and repackage key data points for European reporting.  In a guest article, Doug Schwenk, S. Chris Church and David Vaughan help private fund managers understand the various reporting demands imposed by the AIFMD and compare such reporting requirements with those applicable to Form PF.  Schwenk is a former hedge fund COO and currently the CEO of Advise Technologies; Church is part of the implementation team at Advise; and Vaughan is a partner at Dechert LLP.  For background on the AIFMD, see “Former OCIE Chief Lori Richards and other PwC Partners and Managers Discuss the Mechanics of the AIFMD and Its Impact on Marketing by U.S. Hedge Fund Managers,” Hedge Fund Law Report, Vol. 6, No. 10 (Mar. 7, 2013); and “Marketing Hedge Funds to European Union Investors in the Post-AIFMD Era,” Hedge Fund Law Report, Vol. 5, No. 5 (Feb. 2, 2012).

Seeding, Strategic Stakes and the Evolving Market for Third-Party Investments in Hedge Fund Management Businesses

Hedge fund managers may seek parties to acquire strategic stakes in their businesses or revenue streams for various reasons, including the desire to expand or monetize their businesses.  To help hedge fund managers understand the current market for such arrangements, a recent report provided a thorough look at hedge fund seeding, identified seven discrete seeding models and described recent merger and acquisition activity in the hedge fund space.  The report also provided an overview of recent fund launches and closures.  This article summarizes the key takeaways from the report.  See also “How to Structure Exit Provisions in Hedge Fund Seeding Arrangements,” Hedge Fund of Law Report, Vol. 3, No. 40 (Oct. 15, 2010).

How Can Hedge Fund Managers Effectively Raise Capital from Single-Family Offices, Multi-Family Offices and High Net Worth Individuals?

A law firm and an accounting firm hosted a seminar earlier this year on strategies and risks of hedge fund marketing focused on family offices and high net worth individuals.  The primary purpose of the seminar was to highlight workable, battle-tested strategies for raising capital from both sets of investors.  The secondary purpose of the seminar was to offer practical advice on navigating regulatory risks posed by hedge fund marketing generally.  This article discusses the salient points discussed during the seminar.  For related insight, see “Why and How Do Family Offices and Foundations Invest in Hedge Funds?,” Hedge Fund Law Report, Vol. 6, No. 1 (Jan. 3, 2013).

How Can Hedge Fund Managers Prepare for an SEC Investigation and Maximize the Odds of Obtaining Insurance Coverage? (Part One of Two)

On May 2, 2013, a panel of experts from K&L Gates, Jamison & Co. L.L.C. and ACA Compliance Group hosted a webinar entitled, “Issues Arising from SEC Investigations of Private Fund Managers: How to Prepare for an Investigation and How to Maximize the Odds of Obtaining Insurance Coverage.”  This article, the first in a two-part series covering the webinar, addresses the SEC’s enforcement push against hedge fund managers; steps managers can take to formulate a plan for handling an SEC investigation; common mistakes managers make during investigations; and measures that managers can take to minimize enforcement risk.  For our coverage of current SEC enforcement priorities, see “SEC Commissioner Aguilar Discusses Insider Trading by Hedge Fund Managers, Valuation and Other Examination and Enforcement Pressure Points,” Hedge Fund Law Report, Vol. 6, No. 18 (May 2, 2013).

Dechert Partners Aisha Hunt and Richard Horowitz Discuss Strategies and Challenges for Hedge Fund Managers Wishing to Enter the Alternative Mutual Fund Space

For hedge fund managers, entering the alternative mutual fund space can be attractive for various reasons, including expanded distribution, diversification of product lines, permanent or at least more resilient capital and economies of scale in investment analysis (i.e., getting more mileage out of similar investment ideas).  However, hedge fund managers entering the alternative mutual fund space must confront challenges with which they often have little or no experience – challenges relating to regulation, operations, distribution, marketing, fees, personnel, industry structure and related topics.  We recently explored the opportunities and challenges of the alternative mutual fund space in a two-part series.  See “How Can Hedge Fund Managers Organize and Operate Alternative Mutual Funds to Access Retail Capital? (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 5 (Feb. 1, 2013); and Part Two of Two, Hedge Fund Law Report, Vol. 6, No. 6 (Feb. 7, 2013).  Fortunately for hedge fund managers wishing to access the alternative mutual fund opportunity, there are a number of ports of entry into the space – different structuring tactics, different strategies and different levels of required resource commitment.  To explore the range of the opportunity and the various ways of accessing it, the Hedge Fund Law Report recently spoke with Aisha Hunt and Richard Horowitz, both partners at Dechert LLP focusing on structuring and advising alternative mutual funds.  Among other things, our interview with Hunt and Horowitz covered: the benefits and costs of offering advisory services through a series trust versus a stand-alone alternative mutual fund; the time and resources necessary to launch alternative mutual funds; open-end versus closed-end funds; trends in the use of fulcrum fees; offering commodity strategies through alternative mutual funds; cannibalization considerations; and the role to be played by 401(k) plans in the future of alternative mutual funds.

Report Dissects Private Equity Secondaries Market: Buyer and Seller Motivations, Industry Players, Fundraising Trends and 2013 Predictions

A recent report analyzed historical transaction activity in the private equity secondaries market; perspectives of buyers and sellers on their motivations and outlook for future transactions; and capital raising activity with respect to funds that invest in fund interests via secondary market transactions.  This article summarizes key findings from the report.  See also “O’Melveny & Myers Partners Dean Collins and James Ford Discuss the Rationale, Mechanics and Common Terms for Secondary Market Sales of Private Equity Fund Interests,” Hedge Fund Law Report, Vol. 6, No. 15 (Apr. 11, 2013).

Bingham Adds 7-Lawyer Investment Funds Team in Tokyo

On May 13, 2013, Bingham McCutchen LLP expanded its Tokyo office and bolstered its global cross-border capabilities in Japan and Asia with the addition of Christopher Wells and Tomoko Fuminaga as partners in Bingham’s Investment Management Group, along with five additional lawyers.  See “Primary Regulatory and Business Considerations When Opening a Hedge Fund Management Company Office in Asia (Part Four of Four),” Hedge Fund Law Report, Vol. 5, No. 3 (Jan. 19, 2012).

Shearman & Sterling Adds Three Partners to Its London Private Equity Team

On May 15, 2013, Shearman & Sterling LLP announced that it has bolstered its global private equity business with the addition of three partners to its PE team in London.  Mark Soundy, Sarah Priestley and Simon Burrows have joined the firm from Weil, Gotshal & Manges.  For insight from Shearman recently published in the HFLR, see “JOBS Act: Proposed SEC Rules Would Dramatically Change Marketing Landscape for Hedge Funds,” Hedge Fund Law Report, Vol. 5, No. 34 (Sep. 6, 2012); and “So You Don’t Want to Take the Series 3 Exam?  Alternatives to the General Proficiency Requirement for Associated Persons of Commodity Pool Operators and Commodity Trading Advisors,” Hedge Fund Law Report, Vol. 5, No. 37 (Sep. 27, 2012).

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