Jun. 13, 2013

Why and How Do Hedge Fund Managers Set Minimum Subscription Amounts? (Part Two of Two)

Minimum subscription amounts do more than govern the dollar threshold required for access to a hedge fund.  In addition, minimums communicate information about the manager’s strategy and goals; inform the composition of the investor base; enable and limit performance; impact the pace and productivity of marketing; and constrain fund liquidity.  This is the second article in a two-part series digging deeply into the important but often overlooked topic of hedge fund investment minimums.  Generally, this article explores market practice in this area.  Specifically, this article discusses the market for investment minimums and related terms; trends with respect to minimums; application of minimums in different factual contexts; whether investment minimums apply to follow-on investments; and manager practice for enforcing, waiving and modifying minimums.  The first article in this series addressed primary legal, business and investment rationales for setting hedge fund investment minimums.  See “Why and How Do Hedge Fund Managers Set Minimum Subscription Amounts? (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 23 (Jun. 6, 2013).

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

As most fund managers who either market a fund into the European Union (EU) or manage certain EU funds now know, from July 22, 2013, the EU’s Alternative Investment Fund Managers Directive (Directive or AIFMD) will impact many non-EU managers in potentially significant ways.  The preparation required can be significant.  As a result, Hedge Fund Law Report is publishing this two-part series designed to help non-EU private fund managers understand the steps they must take to prepare for effectiveness of the AIFMD.  The first installment focused on the impact of the Directive during the period from July 2013 through 2015 – the period that first article referred to as “Stage I,” during which non-EU managers will not be fully authorized under the Directive, but nonetheless can be subject to many parts of the Directive, depending on the scope of their activities touching the EU.  See “Application of the AIFMD to Non-EU Alternative Investment Fund Managers (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 21 (May 23, 2013).  This second installment focuses on what this article refers to as the Directive’s “Stages II and III,” which are due to come into effect in 2015 or later, which 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.

Rothstein Kass Provides Roadmap for FATCA Compliance by Hedge Fund Managers

The final regulations governing implementation of the Foreign Account Tax Compliance Act (FATCA), while significant in length, provide little practical guidance to hedge fund managers, who face myriad challenges in determining how to comply with the daunting new legislation.  Yet the failure to comply with the legislation’s detailed and wide-ranging requirements can have severe economic consequences for hedge funds and their investors.  To fill the information gap left by the absence of explicit regulatory guidance, Rothstein Kass recently hosted a webinar providing hedge fund managers with practical insight on preparing for FATCA, including, among other things, a checklist of steps that hedge fund managers should take to begin preparing for FATCA as it is phased in over the next few years.  This article summarizes the key insights from the webinar.  See also “What Impact Will FATCA Have on Offshore Hedge Funds and How Should Such Funds Prepare for FATCA Compliance?,” Hedge Fund Law Report, Vol. 6, No. 5 (Feb. 1, 2013).

How Should Hedge Fund Managers Select Accountants, Prime Brokers, Independent Directors, Administrators, Legal Counsel, Compliance Consultants, Risk Consultants and Insurance Brokers for Their Funds?

This article discusses what hedge fund managers should look for in the companies that provide accounting, brokerage, directorial, administration, legal, consulting, risk management and technology services to a fund.  To do so, this article focuses on questions that hedge fund managers should ask and issues they should address when retaining or changing service providers.

RCA Symposium Clarifies Current Market Practice on Side Letters, Conflicts of Interest, Insider Trading Investigations, Whistleblowers, FATCA and Use of Managed Accounts Versus Funds of One (Part One of Two)

On April 18, 2013, the Regulatory Compliance Association held its Regulation, Operations & Compliance 2013 Symposium, at which industry leaders and regulators offered their perspectives on critical issues facing hedge fund managers and investors.  The Hedge Fund Law Report is publishing a two-part series of articles summarizing salient points from panel discussions held during the Symposium.  This article, the first in the series, discusses regulatory and operational challenges implicated by side letters, including dealing with requests for enhanced liquidity and transparency as well as the evaluation of requests for most favored nation provisions.  This article also addresses how hedge fund managers are using funds of one and managed accounts, and the benefits and burdens of each.  The second installment will cover techniques and strategies regulators and prosecutors are using to investigate insider trading; how managers should address high-priority conflicts of interest; the SEC’s whistleblower program; and compliance with the Foreign Account Tax Compliance Act.  For articles covering speeches made and topics discussed during the Symposium, 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); and “OCIE Director Bowden Identifies Five Key Lessons for Hedge Fund Managers from Recent Presence Examinations,” Hedge Fund Law Report, Vol. 6, No. 21 (May 23, 2013).

PLI Panel Provides Regulator and Industry Perspectives on SEC and NFA Examinations, Allocation of Form PF Expenses, Annual Compliance Review Reporting and NFA Bylaw 1101 Compliance

The Practising Law Institute recently sponsored a program entitled “Hedge Fund Compliance and Regulation 2013,” which included a segment entitled “Building an effective compliance program and strategies for dealing with regulators.”  During that segment, the expert panel – consisting of regulators and industry professionals – offered unique and detailed insight on how regulators and managers approach the SEC and NFA examination process.  Among other things, the panel offered a behind-the-scenes look at how the SEC and NFA approach regulatory examinations; practical guidance on how managers should approach the examination process; candid thoughts on hot-button issues, including the allocation of Form PF expenses, whether managers should document their annual compliance reviews and how regulators use such reports; challenges that hedge fund managers face in complying with NFA Bylaw 1101; and making disciplinary disclosures.

Drinker Biddle Continues New York Expansion with Addition of Kay Gordon

Experienced hedge fund, investment management and private equity lawyer Kay A. Gordon joined Drinker Biddle & Reath LLP on June 10, 2013, as a partner in the firm’s Investment Management Group.  For commentary from Gordon regarding investment minimums, see “Why and How Do Hedge Fund Managers Set Minimum Subscription Amounts? (Part Two of Two),” above, in this issue of the Hedge Fund Law Report.

Dechert Expands Corporate Practice in Paris with the Arrival of Private Equity Partner Matthieu Grollemund

On June 12, 2013, Dechert LLP announced that it is expanding its corporate practice in Europe with the arrival of partner Matthieu Grollemund in Paris.