May 23, 2013

Application of the AIFMD to Non-EU Alternative Investment Fund Managers (Part One of Two)

The European Union’s (EU) Alternative Investment Fund Managers Directive (Directive or AIFMD) comes into force July 2013 and is likely to impact every private fund manager worldwide who either markets a fund into the EU or manages certain EU funds after that date.  The preparation required can be significant, and this two-part series is designed to help non-EU private fund managers understand the steps they must take to prepare for effectiveness of the AIFMD.  Part one provides an overview of what is widely referred to as the Directive’s “Stage I.”  During Stage I, non-EU managers will not be fully authorized under the Directive, but nonetheless can be subject to many parts of the Directive as a result of their activities touching the EU.  Part two (to be published in an upcoming issue of the Hedge Fund Law Report) looks ahead to “Stages II and III,” which come into effect in 2015 or later.  Those later stages contemplate a transition to full authorization under the Directive by all fund managers that are subject to the Directive’s jurisdiction.  The authors of the series are John Adams, counsel in the Asset Management Group at Shearman & Sterling LLP; Nathan Greene a partner and Co-Practice Group Leader in Shearman’s Asset Management Group; Christian Gloger, a senior associate in the Group; and Christine Ballantyne-Drewe, an associate in the Group.

Citi Prime Finance Report on Liquid Alternatives Describes a Massive Capital Raising Opportunity for Hedge Fund Managers Willing to Go Retail (Part One of Two)

Citi Prime Finance (Citi), a division of Citigroup Inc. that provides prime brokerage and other services to hedge funds and institutional clients, recently surveyed the landscape of “liquid alternative” investment products, which include alternative mutual funds, exchange-traded funds (ETFs) and funds organized in the European Union (EU) as Undertakings for Collective Investment in Transferable Securities (UCITS).  A report based on Citi’s survey provides valuable insight on the recent growth in alternative mutual funds and ETFs in the U.S. and alternative UCITS in the EU.  The growing popularity of such products can present opportunities for hedge fund managers to expand their product offerings and raise additional capital from investors.  See “How Can Hedge Fund Managers Organize and Operate Alternative Mutual Funds to Access Retail Capital (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 6 (Feb. 7, 2013).  This article, the first of a two-part series, provides a comprehensive summary of the portions of the report covering the shifting role that hedge funds play in an institutional investor’s portfolio; how regulatory changes have affected the hedge fund market and helped to make liquid alternative investments more attractive; the growing “retail” demand for liquid alternatives; and Citi’s predictions for the growth of the retail alternative market segment.  See also “Dechert Partners Aisha Hunt and Richard Horowitz Discuss Strategies and Challenges for Hedge Fund Managers Wishing to Enter the Alternative Mutual Fund Space,” Hedge Fund Law Report, Vol. 6, No. 20 (May 16, 2013).

RCA Symposium Panels Discuss New CFTC and NFA Regulations Governing Obligations of Hedge Fund Managers Required to Register as CPOs or CTAs

On April 18, 2013, the Regulatory Compliance Association held its Regulation, Operations & Compliance 2013 Symposium (RCA Symposium) in New York City.  Panels during the RCA Symposium covered various topics, including new regulations of the U.S. Commodity Futures Trading Commission and the National Futures Association (NFA) that apply or will apply to numerous hedge fund managers.  The two panels that tackled these issues addressed, among other things, registration obligations of commodity pool operators (CPO) and their principals and associated persons; reporting and other obligations applicable to new CPO and CTA registrants; Bylaw 1101; required ethics training programs; regulations governing marketing and promotional materials; and NFA audits.  This article addresses salient points from both sessions.  See also “Do You Need to Be a Registered Commodity Pool Operator Now and What Does It Mean If You Do? (Part Two of Two),” Hedge Fund Law Report, Vol. 5, No. 19 (May 10, 2012).

How Can Hedge Fund Managers Prepare for an SEC Investigation and Maximize the Odds of Obtaining Insurance Coverage? (Part Two 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 second in a two-part series covering the webinar, addresses insurance coverage for hedge fund managers, including: an overview of directors and officers and errors and omissions policies; the state of the market for insurance coverage for hedge funds and managers; the risk of relying on fund indemnification without obtaining insurance; judicial decisions providing guidance on the scope of coverage, including with respect to SEC investigations; steps that funds and managers can take to maximize insurance coverage for SEC investigations; the SEC’s enforcement push; 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.  See also “Hedge Fund D&O Insurance: Purpose, Structure, Pricing, Covered Claims and Allocation of Premiums Among Funds and Management Entities,” Hedge Fund Law Report, Vol. 4, No. 41 (Nov. 17, 2011).

OCIE Director Bowden Identifies Five Key Lessons for Hedge Fund Managers from Recent Presence Examinations

On April 18, 2013, just before being named the new Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), Andrew J. Bowden spoke at the Regulatory Compliance Association’s “Regulation, Operations & Compliance 2013” Symposium.  Bowden provided context for and color on OCIE’s recently-issued policy statement entitled “Examination Priorities for 2013,” and highlighted important findings from recently-conducted presence examinations.  This article summarizes the key points from Bowden’s speech.  For more on concerns identified by SEC staff during recent presence examinations, see “Do In-House Marketing Activities and Investment Banking Services Performed by Private Fund Managers Require Broker Registration?,” Hedge Fund Law Report, Vol. 6, No. 16 (Apr. 18, 2013).

JPMorgan Report Reveals Family Office Perspectives on Hedge Fund Manager Size, Investment Strategy, Fee Terms, Liquidity Terms and Transparency Levels

In April 2013, JPMorgan’s Capital Introduction Group released its tenth annual survey of institutional investors, including family offices that have invested approximately $50.7 billion in hedge funds.  Survey respondents shared their views on various topics, including their preferences regarding hedge fund manager size, investment strategy, fee terms, liquidity terms and transparency levels.  This article summarizes the primary findings from this report.  For a discussion on how to market to family offices, see “How Can Hedge Fund Managers Effectively Raise Capital from Single-Family Offices, Multi-Family Offices and High Net Worth Individuals?,” Hedge Fund Law Report, Vol. 6, No. 20 (May 16, 2013).

Derivatives Lawyer Matthew Kluchenek Joins Baker & McKenzie in Chicago

On May 16, 2013, Baker & McKenzie announced that Matthew Kluchenek has joined the firm as a partner and will lead the firm’s North American derivatives practice.  See “Practising Law Institute Panel Discusses Sweeping Regulatory Changes for Hedge Fund Managers That Trade Swaps,” Hedge Fund Law Report, Vol. 5, No. 45 (Nov. 29, 2012).