Sep. 25, 2014

The Odyssey of Private Fund Advertising: From Great Expectations to Much Ado about Nothing

On September 9, 2014, the Division of Swap Dealer and Intermediary Oversight of the CFTC issued an exemptive letter (the JOBS Act Exemptive Letter) for private fund managers relying on exemptions from registration as commodity pool operators (CPOs) with the CFTC.  This relief harmonizes the CFTC’s CPO exemptions with the 2013 final rules issued by the SEC relating to offerings exempt from registration under the Securities Act of 1933 as required by the JOBS Act.  In a guest article, David M. Matteson and Andrew C. Raby, partner and senior associate, respectively, in the Chicago office of Drinker Biddle & Reath LLP, discuss the impact of the JOBS Act Exemptive Letter and summarize the current state of private fund advertising.  See also “Further CFTC Harmonization of Rules for Hedge Funds: A Welcome and Continuing Trend,” Hedge Fund Law Report, Vol. 7, No. 35 (Sep. 18, 2014).

Sidley Partners Discuss Evolving Hedge Fund Fee Structures, Seed Deal Terms, Single Investor Hedge Funds, Risk Aggregators, Expense Allocations, Co-Investments and Fund Liquidity (Part One of Two)

Sidley Austin recently hosted its annual private funds event in New York City.  This article is the first in a two-part series covering that event.  This article highlights the most useful points made during a discussion entitled “Hedge Fund Terms and Trends,” featuring Sidley partners Benson R. Cohen, Janelle Ibeling, William D. Kerr and Christopher P. Lokken.  The partners addressed registered funds; challenges presented by single investor or single relationship hedge funds; use of and resistance by managers to risk aggregators; seed deal terms and trends; structures for aligning fund liquidity with investment duration; expense allocations; developments in fund structuring; and the impact of the Volcker Rule on hedge fund investments by bank aggregator platforms.  The discussion also provided a uniquely candid and relevant discussion of evolving fee structures and models for hedge funds and other entities used to offer alternative investment strategies.  Sidley sees and structures hedge funds and related vehicles across a wide range of strategies, sizes and geographies.  Accordingly, insight from Sidley partners on fees is generally relevant to hedge fund managers launching new products or justifying or amending fee structures on existing products.  Hedge Fund Law Report previously covered Sidley’s 2013 private funds conference in three parts.  See Part One, Part Two and Part Three.

NICSA/ALFI Program Considers Impact of AIFMD on U.S. Fund Managers

NICSA, the National Investment Company Service Association, in cooperation with ALFI, the Association of the Luxembourg Fund Industry, recently presented an overview of the AIFMD and its impact on U.S. fund managers.  The program was moderated by Theresa Hamacher, President of NICSA.  The speakers were Michael Ferguson, Co-Chair of the ALFI Hedge Funds Sub-Committee and a Partner and Asset Management Leader at Ernst & Young; and Claude Niedner, Chair of the ALFI Alternative Investments Committee and a founding Partner of Luxembourg’s Arendt & Medernach.  See also “Navigating the Patchwork of National Private Placement Regimes: A Roadmap for Marketing in Europe by Non-EU Hedge Fund Managers That Are Not Authorized Under the AIFMD,” Hedge Fund Law Report, Vol. 7, No. 28 (Jul. 24, 2014).

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

This is the fourth article in our five-part serialization of a treatise chapter by Dechert LLP partner Andrew Oringer.  The chapter details the ERISA provisions of primary relevance to private fund managers and references relevant authority.  This article continues the discussion of prohibited transactions initiated in part three.  In particular, this article addresses self-dealing issues relating to fee structures, certain special issues for plans of financial institutions, services for multiple funds, payment or reimbursement of expenses, employer securities and employer real property and certain miscellaneous exceptions (including foreign exchange and cross trading).  The third article in the series focused on prohibited transactions, qualified professional asset managers, the “service provider” exemption and the exemption for compensation for services.  The second article in the series covered 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.  The first article in the series discussed the “plan assets” rules and rules for the delegation and allocation of fiduciary responsibility.

Enforcement Action against Private Equity Fund Manager Highlights Five Aspects of the SEC’s Thinking on Allocation of Expenses

The SEC recently charged a private equity fund manager with failing to allocate expenses between the two portfolio companies in the manner prescribed by its own expense allocation policy.  The matter is notable for highlighting at least five aspects of the SEC’s thinking on allocation of fund and portfolio company expenses.

Hedge Fund Adviser Structured Portfolio Management Settles SEC Charges Relating to Improper Trade Allocations and Investor Disclosures

Registered investment adviser Structured Portfolio Management, L.L.C. and two affiliated investment advisers have agreed to settle SEC charges stemming from allegedly inadequate compliance policies and procedures that resulted in improper trade allocations among the funds they advised and failure to disclose a change of strategy to fund investors.  For more on SPM, see “Dispute between Structured Portfolio Management and Jeffrey Kong Offers a Rare Glimpse into the Compensation Arrangements between a Top-Performing Hedge Fund Management Company and a Star Portfolio Manager,” Hedge Fund Law Report, Vol. 4, No. 8 (Mar. 4, 2011).  “Cherry picking” of trades, and the conflicts of interest that arise when advisers allocate trades, have been ongoing focus areas for the SEC.  See, e.g., “SEC Charges Hedge Fund Manager and Its Founder with Securities and Investment Adviser Fraud Based on ‘Cherry Picking’ of Trades,” Hedge Fund Law Report, Vol. 6, No. 1 (Jan. 3, 2013).

Akin Gump Announces Additional Partners in London and Hong Kong

On September 22, 2014, Akin Gump announced that four partners will join the firm in its funds and corporate practices in London and Hong Kong, from Bingham McCutchen.  For insight from the firm, see “Akin Gump Partners Present Overview of Recent Developments in Fund Taxation, Fund Manager Transactions and Hedge and Private Equity Fund Investment Terms,” Hedge Fund Law Report, Vol.6, No. 48 (Dec. 19, 2013); and “How Can Hedge Fund Managers Understand and Navigate the Perils of Insider Trading Regulation and Enforcement in Hong Kong and the People’s Republic of China,” Hedge Fund Law Report, Vol. 6, No. 13 (Mar. 28, 2013).

Veteran Asset Management Attorney Peter Tsirigotis Joins Stradley Ronon

On September 18, 2014, law firm Stradley Ronon announced that Peter Tsirigotis, an experienced investment management attorney, has joined the firm as counsel in its Investment Management/Mutual Funds practice group.  For insight from Tsirigotis, see “Peter Tsirigotis of Brown Brothers Harriman Discusses the Operational Challenges Posed by Side Letters,” Hedge Fund Law Report, Vol. 6, No. 7 (Feb. 14, 2013); “RCA Symposium Identifies Best Practices for Hedge Fund Managers on Topics Including Insider Trading, Compliance Reviews, SEC Examinations, Fund Governance, Form PF and Marketing and Advertising (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 8 (Feb. 21, 2013).