Oct. 30, 2014

A Practical Comparison of Reporting Under AIFMD versus Form PF

Europe’s Alternative Investment Fund Managers Directive (AIFMD) is in full effect and the consolidated AIFMD reporting template – commonly referred to as Annex IV – is now final.  Although some fund managers have already filed Annex IV, the vast majority will do so in January 2015, for the reporting period ending on December 31, 2014.  A prior article in the HFLR described efforts to harmonize Annex IV and Form PF.  See “A Practical Guide to AIFMD Reporting for Non-E.U. Fund Managers: Reporting Under AIFMD versus Form PF,” Hedge Fund Law Report, Vol. 6, No. 20 (May 16, 2013).  This article updates the discussion in that prior article, providing a useful side-by-side comparison of reporting under the two forms.  Firms should take note that even where this comparison highlights similarities between the two forms, there are still certain nuances that could trip up filers (and this article provides examples of such nuances).  The authors of this article are Jeanette Turner, Managing Director & General Counsel at Advise Technologies, LLC; David Vaughan, a partner in Dechert LLP’s Washington, D.C. office; Chris Gardner, a partner in Dechert LLP’s London office; and Rachel Fenwick, an associate in Dechert LLP’s London office.

Identifying and Mitigating the Chief Legal, Regulatory and Operational Risks in Hedge Fund Manager Office Sharing Arrangements (Part Three of Three)

On the positive side, sharing office space can save hedge fund managers (especially startup managers) money, increase efficiency and facilitate legal idea sharing.  On the negative side, sharing office space can increase regulatory and operating risk.  The first article in this three-part series detailed the main benefits of office sharing.  The second article detailed the main risks and how to mitigate them.  This article, the last in the series, discusses subadvisor, subtenant and contract arrangements; allocation of hedge fund manager real estate costs; prime broker and “hedge fund hotel” arrangements; and how to handle office sharing arrangements during on-site due diligence visits by institutional investors.

K&L Gates Partners Offer Practical Guidance for Hedge Fund Managers on Raising Capital in Australia, the Middle East and Asia

Pension funds and sovereign wealth funds are important potential sources of capital for hedge fund managers.  Australia and Japan have about $1.7 trillion and $1.2 trillion in pension assets, respectively, while the sovereign wealth funds of Middle East nations hold another $1.8 trillion.  The Chinese market has huge potential as well.  In that regard, a recent presentation by international law firm K&L Gates LLP offered a comprehensive overview of the regulatory regimes and marketing requirements that affect fund managers seeking capital in Australia, the Middle East, Japan, China, Hong Kong and Singapore.  The program was moderated by K&L Gates partner Cary J. Meer.  The other speakers were her partners Natalie R. Boyd, Elizabeth A. Gray, Betsy-Ann Howe, Tsuguhito Omagari and Choo Lye Tan.  For a similar global regulatory roundup, see “KPMG Report Highlights Key Developments in Hedge Fund Regulation in the Americas, the Asia-Pacific Region, Europe, South Africa and the Middle East,” Hedge Fund Law Report, Vol. 7, No. 33 (Sep. 4, 2014).  For a discussion of regional “passport” initiatives that may facilitate marketing of funds in Asia and Australia, see “How Can U.S. Hedge Fund Managers Use Passport and Mutual Recognition Initiatives to Market to Investors in Asia?,” Hedge Fund Law Report, Vol. 7, No. 27 (Jul. 18, 2014).

Tax, Structuring, Compliance and Operating Challenges Raised by Hedge Funds Offered Exclusively to Insurance Companies

Insurance dedicated funds (IDFs) are hedge funds offered exclusively to insurance companies and indirectly capitalized by the insurers’ life insurance or annuity policyholders.  For hedge fund managers, IDFs offer tax advantages, a niche marketing opportunity and a resilient investor base.  In connection with a Hedge Fund Association Symposium on the topic being held today in Fort Lauderdale, the Hedge Fund Law Report recently interviewed Greenberg Traurig shareholder Scott MacLeod on structuring, operational, tax, compliance, marketing and related considerations in connection with IDFs.  Specifically, MacLeod addressed salient tax considerations from the perspectives of investors, insurance companies and managers; hedge fund strategies that lend themselves to IDFs; relevant control and diversification requirements; redemption and liquidity issues; consequences of insurer insolvencies; material terms of governing documents; differences between IDFs and reinsurance vehicles launched by hedge fund managers; IDF platforms; private placement variable annuities; and compliance challenges specific to IDFs.  See also “Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part One of Two),” Hedge Fund Law Report, Vol. 4, No. 11 (Apr. 1, 2011).

Bridgewater Associates Sues Ex-Employees Who Allegedly Seek to Trade Off Its Name and Goodwill

Hedge fund giant Bridgewater Associates, LP (Bridgewater), recently filed a civil complaint against two former junior employees who allegedly misrepresented their former roles at the fund manager in an effort to promote a competing hedge fund business.  Bridgewater bills itself as “both a market- and thought-leader in the field of investment management.”  The crux of its complaint is that, in their efforts to start and promote their own hedge funds, former employees Wenquan Wu and Howard Wang and their affiliated companies lied to the market about their former roles and responsibilities at Bridgewater and sought to trade unfairly off of Bridgewater’s reputation.  This article summarizes Bridgewater’s factual allegations and legal claims.  Litigation often arises when principals or senior employees leave to form a competing fund.  See “Brevan Howard Co-Founder Sues Firm to Invalidate Non-Compete Provisions in Partnership Agreement,” Hedge Fund Law Report, Vol. 7, No. 31 (Aug. 21, 2014); and “Delaware Chancery Court, Criticizing Both Sides in Contentious Litigation, Awards $4.662 Million to Camulos Capital Hedge Fund Founder in Payment for His Fund Interest,” Hedge Fund Law Report, Vol. 5, No. 38 (Oct. 4, 2012).  Such disputes may also involve ownership of intellectual property, misuse of proprietary or confidential information, sloppy documentation of payments and sloppy drafting of governing documents.  Such actions are less common when, as here, junior employees are involved.

Kleinberg Kaplan Continues Expansion of Hedge Fund Practice with Addition of Attorney Jared Gianatasio

On October 30, 2014, Kleinberg, Kaplan, Wolff & Cohen, P.C. announced that Jared R. Gianatasio has joined the firm as senior counsel.  His practice will focus on investment funds and derivatives.  For insight from the firm, see “The Impact of Revenue Ruling 2014-18 on Compensation of Hedge Fund Managers and Employees,” Hedge Fund Law Report, Vol. 7, No. 24 (Jun. 19, 2014); “A Checklist for Updating Hedge Fund and Service Provider Documents for FATCA Compliance,” Hedge Fund Law Report, Vol. 7, No. 7 (Feb. 21, 2014); and “Insurance Dedicated Funds Offer Hedge Fund Exposure Plus Tax, Underwriting and Asset Protection Advantages for Investors,” Hedge Fund Law Report, Vol. 6, No. 28 (Jul. 18, 2013).

Investment Funds Counsel Joins Latham & Watkins in Chicago

On October 23, 2014, Latham & Watkins LLP announced that Nancy Kowalczyk has joined the firm’s Chicago office as counsel in the Investment Funds Practice Group within the firm’s Corporate Department.