Jun. 2, 2014

When and How Can Hedge Fund Managers Close Hedge Funds in a Way that Preserves Opportunity, Reputation and Investor Relationships?  (Part Two of Two)

This is the second article in our two-part series on best practices for closing hedge funds.  The first article in this series laid out an eight-step framework for executing fund closures, and this article discusses many of the difficult issues that managers encounter when working through that eight-step framework.  In particular, this article analyzes the following themes or issues that regularly come up in connection with closing hedge funds: what happens to the rights and obligations in side letters; holdbacks, reserves and clawbacks; three strategies for handling side pockets and illiquid assets; management and performance fees; litigation, contingent liabilities and indemnification; how to handle an account managed in parallel with a closed fund; whether to include or exclude a closed fund in performance information and advertising; investor relations best practices; and the three most common mistakes hedge fund managers make in closing funds.

Aligning Employee and Investor Interests Under the Volcker Rule

The Volcker Rule limits the extent to which bank-affiliated asset managers and their employees may invest in hedge funds that they sponsor.  As a result, such managers need to ensure that any arrangements that allow for employee participation, including compensation arrangements, comply with the final Volcker Rule.  In a guest article, Tram N. Nguyen and Steven W. Rabitz, both partners at Stroock & Stroock & Lavan LLP, examine the different options that managers have under the final Volcker Rule in designing such arrangements.

Four Approaches to Fund Marketing and Distribution Under the AIFMD

The European Union’s (EU) Alternative Investment Fund Managers Directive (AIFMD) established a comprehensive regime to regulate EU-based funds and fund managers, including governing when and how alternative investments may be offered to prospective investors in 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).  On July 22, 2014, hedge fund managers who wish to market their funds in the EU must have either received authorization under the AIFMD or taken other steps to assure that they may accept investments from the EU.  A panel of industry experts from Walkers, SEI Investments, PricewaterhouseCoopers and DMS Offshore Investment Services, Ltd. recently discussed those steps, providing practical insight for hedge fund managers who wish to obtain or maintain access to EU capital.  This article summarizes the key points from that discussion.

Estate Planning Tips for Hedge Fund Managers

In 2013, Congress made permanent a generous estate and gift tax regime, which permits an individual to transfer more than $5.3 million to children and other beneficiaries free of estate and gift taxes.  Even so, the interests of hedge fund principals in their fund businesses routinely exceed that exemption amount.  A recent program presented by Ropes & Gray LLP outlined the current estate and gift tax regime and explored ways in which hedge fund principals may make lifetime gifts that maximize the value of their gifts while minimizing the estate and gift tax consequences.  For more on estate planning with hedge fund interests, see “Simple Goals in a Complex World: Estate Planning for Hedge Fund Interests,” Hedge Fund Law Report, Vol. 3, No. 11 (Mar. 18, 2010).

BNY Panels Discuss the Supply Of, and Demand For, Alternative Mutual Funds

Mutual funds that follow alternative investment strategies, often referred to as “liquid alternatives,” provide alternative investment opportunities to non-accredited investors.  A recent pair of panel discussions sponsored by BNY Mellon considered the current state of the market for alternative mutual funds.  The first panel provided insights on the supply of such funds from hedge fund and traditional asset managers.  The second panel considered the demand for alternative mutual funds, with a focus on defined contribution plans.  This article provides a long-form summary of both panels, which offered actionable insights for hedge fund managers considering entering the mutual fund space.

KPMG to Add Partners and Employees of Rothstein Kass

Having pursued the New Jersey accounting firm over the past few years, New York accounting firm KPMG announced on May 30, 2014 that it has “entered an agreement by which most of the principals and employees of Rothstein Kass will join KPMG.”  While smaller than KPMG by headcount and revenue, Rothstein Kass has a larger hedge fund auditing practice and the acquisition will make KPMG the largest auditor of hedge funds based on number of clients, the Wall Street Journal reported.  For insight from KPMG, see “KPMG/AIMA/MFA Survey Quantifies the Impact of the AIFMD, FATCA, Form PF and Adviser/CPO Registration on Hedge Fund Manager Compliance Budgets,” Hedge Fund Law Report, Vol. 6, No. 43 (Nov. 8, 2013); and “Survey by AIMA and KPMG Identifies the Key Drivers of the Bifurcation of the Hedge Fund Industry Between Larger and Smaller Managers,” Hedge Fund Law Report, Vol. 5, No. 21 (May 24, 2012).  For insight from Rothstein Kass, see “Key Accounting and Legal Hurdles in Starting a Hedge Fund Management Business, and How to Surmount Them,” Hedge Fund Law Report, Vol. 7, No. 18 (May 8, 2014); and “Rothstein Kass Provides Roadmap for FATCA Compliance by Hedge Fund Managers,” Hedge Fund Law Report, Vol. 6, No. 24 (Jun. 13, 2013).

Investment Funds Specialist David Brennand Joins Katten in London

On May 19, 2014, Katten Muchin Rosenman UK LLP announced that investment funds attorney David Brennand has joined the firm’s Financial Services practice as a partner in London.  For insight from the firm, see “Katten Forum Identifies Best Practices for Hedge Fund Managers Regarding Best Execution, Soft Dollars, Principal Trades, Agency Cross Trades, Cross Trades and Trade Errors,” Hedge Fund Law Report, Vol. 7, No. 10 (Mar. 13, 2014); and “Katten Seminar Provides Hedge Fund Managers with a Roadmap for JOBS Act Compliance,” Hedge Fund Law Report, Vol. 6, No. 43 (Nov. 8, 2013).

Reed Smith Expands Its European Funds Practice

Reed Smith recently announced the appointment of partner Winston Penhall and associate Matt Evans to its Funds Group in London.  Both attorneys re-join Reed Smith following their moves to KPMG, in 2012 and 2013, respectively, where Penhall was the founder and leader of the KPMG funds law team.

AMG Appoints David M. Billings as Executive Vice President and General Counsel

Effective June 30, 2014, David M. Billings will become Executive Vice President and General Counsel of global asset manager Affiliated Managers Group, Inc.