Sep. 11, 2014

How May Investors in Cayman Islands Hedge Funds In Liquidation Protect Their Interests If Dissatisfied with the Liquidators’ Conduct of the Liquidation?

Investors are rarely happy to learn that the Cayman Islands hedge fund in which they have invested is entering liquidation.  That dissatisfaction can be exacerbated by the conduct of the liquidator.  Causes of such dissatisfaction include lack of transparency, delay, cost, fire sales, failure to bring claims, failure on the part of the liquidators to consider a restructuring, etc.  However, the Cayman corporate liquidation process is structured to protect shareholders and creditors in liquidations, and the Cayman liquidation framework provides safeguards relating to court and voluntary liquidations.  In a guest article, Christopher Russell and Paul Kennedy, partner and associate, respectively, in the Litigation and Insolvency practice group at Appleby, Cayman Islands, enumerate specific strategies whereby investors in liquidating Cayman hedge funds that are not satisfied with the conduct of the liquidator may protect their interests.  See also “When and How Can Hedge Fund Managers Close Hedge Funds in a Way that Preserves Opportunity, Reputation and Investor Relationships?  (Part Two of Two),” Hedge Fund Law Report, Vol. 7, No. 21 (Jun. 2, 2014).

Happily Ever After? – Investment Funds that Live with ERISA, For Better and For Worse (Part Two of Five)

This is the second article in our five-part serialization of a treatise chapter by Dechert LLP partner Andrew Oringer.  The chapter describes – clearly, comprehensively and with citations to a range of authority that would be immensely time-consuming to compile independently – the ERISA provisions of primary relevance to private funds.  Private fund managers need to understand ERISA if they market to pension funds, and we have yet to encounter a more pithy and pointed route to understanding relevant ERISA concepts (and excluding extraneous concepts) than this chapter.  This second article in the series focuses on fiduciary duty considerations, including delegation, allocation of investment opportunities, varied interests of fund investors, indemnification and insurance, investments in portfolio funds, enforcement-related matters and diversification requirements.  To view the first article in this series, click here.

Irish Central Bank Issues Proposed Rules to Enable Private Funds to Originate Loans

Hedge funds domiciled in Ireland are often organized as Qualifying Investor Alternative Investment Funds.  See “Considerations for Launching Qualified Investor Funds in Ireland: An Interview with Pat Lardner, Chief Executive of the Irish Funds Industry Association,” Hedge Fund Law Report, Vol. 5, No. 31 (Aug. 9, 2012).  Such funds have been prohibited from originating loans.  The Central Bank of Ireland, which regulates such funds, recently proposed rules that would permit such funds to originate loans and has solicited stakeholder comments on those rules.  The so-called Loan Originating Qualifying Investor Alternative Investment Funds would be permitted to originate loans under certain stringent conditions, including that the fund be closed-ended and that lending be its sole business activity.  See also “Allen & Overy Report Suggests that Pressure from New Regulations on Bank Lending May Create Additional Opportunities for Hedge Funds and Other Non-Bank Sources of Capital,” Hedge Fund Law Report, Vol. 5, No. 48 (Dec. 20, 2012).  This article provides a detailed discussion of the Central Bank’s proposed rules on lending by private funds, and includes context and market color from Andrew Bates, a partner in Dublin-based Dillon Eustace.

U.S. District Court Denies Class Certification for Investors in Defunct Hedge Fund Parkcentral Global

The 2008 collapse of hedge fund Parkcentral Global, L.P., which was managed by H. Ross Perot’s money management team, spawned a great deal of litigation.  In one branch of that litigation, certain investors sought certification of a class action in the U.S. District Court for the Northern District of Texas to pursue claims of breach of fiduciary duty against the fund’s investment managers on behalf of all affected investors.  See “Can Hedge Fund Managers Contract Out Of Default Fiduciary Duties When Drafting Delaware Hedge Fund and Management Company Documents?,” Hedge Fund Law Report, Vol. 6, No. 14 (Apr. 4, 2013).  In a recent decision, the District Court refused to certify a class because it was not impractical for the individual fund investors who suffered losses to join the suit and because common issues of law or fact did not predominate in the case.  This article describes the decision, and is relevant to those on either side of the bar – disgruntled hedge fund investors and their counsel, and those defending or managing the defense of such actions.

Federal Appellate Court Determines That “Officer” Is Not a Self-Effectuating Term in Corporate Bylaws, with Implications for Hedge Fund Manager Indemnification Provisions and D&O Insurance Policies

In connection with an ongoing dispute involving alleged trade secret theft, a federal appellate court recently construed the meaning of the term “officer” in the bylaws of a notable financial holding company.  See “How Can Hedge Fund Managers Protect Themselves Against Trade Secrets Claims?,” Hedge Fund Law Report, Vol. 7, No. 19 (May 16, 2014).  The bylaws provided for indemnification and advancement of attorney fees for officers of the company and certain of its subsidiaries.  See “Stanley Druckenmiller’s Counsel Provides a Tutorial for Negotiating Exculpation, Indemnification, Redemption, Withdrawal and Amendment Provisions in Hedge Fund Governing Documents,” Hedge Fund Law Report, Vol. 7, No. 5 (Feb. 6, 2014).  Thus, if the alleged trade secret thief was an “officer,” he would be entitled to indemnification and advancement of attorney fees, to the extent permitted by relevant law.  If he was not an officer, he – rather than his former employer – would bear the cost of litigation and remedies.  The appellate court’s opinion is notable in at least two respects, both discussed in this article.  See also “How Can Hedge Fund Managers ‘Manuscript’ D&O and E&O Insurance Policies to Broaden Coverage without Increasing Cost?,” Hedge Fund Law Report, Vol. 6, No. 33 (Aug. 22, 2013).

Robert Underhill Joins Edwards Wildman as Insurance and Reinsurance Partner in New York

On September 8, 2014, Edwards Wildman Palmer announced that Robert Underhill has joined the firm as a partner in the firm’s Insurance and Reinsurance sector in New York City.  As a member of the firm’s Insurance Regulatory & Transactional practice group, he will focus on advising hedge and private equity funds, investment banks and insurance and reinsurance companies.  See “Considerations for Hedge Fund Managers Evaluating Forming Reinsurance Vehicles in the Cayman Islands,” Hedge Fund Law Report, Vol. 7, No. 33 (Sep. 4, 2014); “How Can Hedge Fund Managers Use Reinsurance Businesses to Raise and Retain Assets and Achieve Uncorrelated Returns? (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 3 (Jan. 17, 2013).