This is the second article in a two-part series covering a presentation by Stephanie R. Breslow at the Practising Law Institute’s annual hedge fund management program.  Breslow is a partner at Schulte Roth & Zabel LLP, co-head of its Investment Management Group and a member of the firm’s Executive Committee.  This article summarizes Breslow’s insights on: (1) compliance challenges for hedge fund managers with respect to the secondary market in hedge fund shares; (2) benefits of investor-level as opposed to fund-level gates; (3) managers’ increasing use of co-investment vehicles rather than side pockets; (4) updating fund provisions regarding calculating NAV after suspension of redemptions; (5) the benefits and drawbacks of funds of one; and (6) fiduciary considerations in the increasingly cautious and institutional current hedge fund industry environment.  The first article in this series discussed Breslow’s comments on gates, side pockets, synthetic side pockets and in-kind distributions, and how those tools evolved both before and during the credit crisis.  For coverage of Breslow’s presentations at PLI hedge fund management programs in prior years, see “Schulte Partner Stephanie Breslow Discusses Tools for Managing Hedge Fund Crises Caused by Liquidity Problems, Poor Performance or Regulatory Issues,” Hedge Fund Law Report, Vol. 7, No. 1 (Jan. 9, 2014); “Schulte Partner Stephanie Breslow Discusses Hedge Fund Liquidity Management Tools in Practising Law Institute Seminar,” Hedge Fund Law Report, Vol. 5, No. 43 (Nov. 15, 2012). Read full article …

A recent program offered a roadmap for hedge fund managers in preparing for, handling and surviving IRS partnership audits.  The program specifically focused on trends, statistics and mechanics of partnership audits; partnership audit procedures and IRS staffing; five of the most important issues in current partnership audits; and best practices in preparing for an audit.  Many domestic hedge funds and management companies are structured as partnerships or other pass-through entities.  Accordingly, the discussion of IRS partnership audit issues has direct relevance to U.S. hedge fund managers, hedge funds and hedge fund investors.  This article summarizes the most noteworthy insights from the program.  See also “Hedge Fund Tax Experts Discuss Allocations of Gains and Losses, Contributions to and Distributions of Property from a Fund, Expense Pass-Throughs and K-1 Preparation at FRA/HFBOA Seminar (Part One of Four),” Hedge Fund Law Report, Vol. 7, No. 2 (Jan. 16, 2014). Read full article …

In a recent video interview, Udi Grofman, co-head of the Private Funds Practice Group at Paul, Weiss, Rifkind, Wharton & Garrison LLP, discussed four important aspects of co-investments in the hedge fund context: why allocators are interested in co-investments and why hedge fund managers are using them; hedge fund strategies in which co-investments make the most sense; legal, regulatory and structuring considerations; and disclosure issues.  This article summarizes Grofman’s insights on co-investments.  See also “Co-Investments in the Hedge Fund Context: Fiduciary Duty Concerns, Conflicts and Regulatory Risks (Part Three of Three),” Hedge Fund Law Report, Vol. 7, No. 9 (Mar. 7, 2014). Read full article …

Section 457A of the Internal Revenue Code, enacted in 2008, generally prohibits deferral of compensation paid by entities that are not subject to U.S. tax.  The tax risk created by that section caused private fund managers to avoid performance fees payable in respect of multi-year measurement periods, which could be considered to be deferred compensation.  Earlier this year, the IRS issued Revenue Ruling 2014-18, which generally confirms that fund managers may use fund appreciation rights (analogous to stock appreciation rights) to provide performance-based compensation on a tax-deferred basis.  A recent program considered the impact of that ruling, with an emphasis on the benefits that fund appreciation rights may provide as a compensation vehicle.  The program was moderated by COOConnect founding partner Dominic Hobson.  The speakers were David E. Francl, Director, Hedge Funds and Operations, in Intel’s Treasury Department; Andrew L. Oringer, a Partner at Dechert LLP; and Thomas M. Young, a Managing Director at Optcapital LLC.  For more on Revenue Ruling 2014-18, see “Are Compensatory Options on Offshore Hedge Fund Shares Subject to the Anti-Deferral Provisions of Internal Revenue Code Section 457A?,” Hedge Fund Law Report, Vol. 7, No. 23 (Jun. 13, 2014). Read full article …

ACA Compliance Group (ACA) recently completed its 2014 Alternative Fund Manager Compliance Survey, which examined managers’ experience with recent SEC examination initiatives, the role of a manager’s chief compliance officer, compliance reviews and testing, custody and safeguarding of assets, fees and personal trading.  On November 14, 2014, Jack Rader and Danielle Joseph, both Senior Principal Consultants at ACA, discussed the survey results.  For coverage of prior ACA surveys, see “ACA Compliance Survey Covers Current Hedge Fund Practices on Marketing, Trading, Counterparties and Valuation,” Hedge Fund Law Report, Vol. 7, No. 23 (Jun. 13, 2014); “ACA Compliance Report Facilitates Benchmarking of Private Fund Manager Compliance Practices (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 38 (Oct. 3, 2013); “ACA Compliance Report Facilitates Benchmarking of Private Fund Manager Compliance Practices (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 39 (Oct. 11, 2013); and “ACA Compliance Group Survey Provides Benchmarks for a Range of Hedge Fund Manager Compliance Functions, Including Dual-Hatting, Annual Compliance Reviews, Forensic Testing, Custody, Fees and Signature Authority,” Hedge Fund Law Report, Vol. 6, No. 19 (May 9, 2013). Read full article …

On November 13, 2014, Norm Champ, Director of the SEC’s Division of Investment Management (IM), presented a speech at the American Law Institute’s 2014 Conference on Life Insurance Company Products.  In the speech, Champ laid out IM’s agenda as it relates to disclosure, publication of guidance, rulemaking, use of derivatives by mutual funds and stress testing of asset management firms.  This article relates the key points from Champ’s speech.  See also “SEC Investment Management Division Director Norm Champ Pinpoints the Key Compliance Challenges in Hedge Fund and Alternative Mutual Fund Management,” Hedge Fund Law Report, Vol. 7, No. 35 (Sep. 18, 2014). Read full article …

White Collar Defense & Litigation boutique law firm Morvillo LLP recently announced that Eugene Ingoglia, former Assistant U.S. Attorney in the U.S. Attorney’s Office for the Southern District of New York, has joined the firm as a White Collar litigation partner in New York.  As a member of the Office’s Securities and Commodities Fraud Unit, Ingoglia tried and convicted former SAC Capital portfolio manager Matthew Martoma in the government’s criminal insider trading case.  For insight on insider trading, see “Former Federal Prosecutors Share Perspectives on Insider Trading Hot-Button Issues and Enforcement Trends Relevant to Hedge Fund Managers,” Hedge Fund Law Report, Vol. 5, No. 39 (Oct. 11, 2012).  The biggest recent news in the law of insider trading is that, on December 10, 2014, the Second Circuit overturned the insider trading convictions of former hedge fund portfolio managers Todd Newman and Anthony Chiasson.  The HFLR will cover that Second Circuit decision in next week’s issue.  The HFLR previously covered the civil action arising out of the same facts and circumstances that led to the convictions of Newman and Chiasson, as well as some of the D&O insurance consequences of the litigation.  See “New York District Court Orders Insurer XL to Advance Defense Costs to Level Global Under D&O Policy,” Hedge Fund Law Report, Vol. 5, No. 27 (Jul. 12, 2012).  See also “SEC’s Insider Trading Suit against Former Level Global Trader Illustrates the Risk of Retaining a Former Public Company Employee as a Consultant,” Hedge Fund Law Report, Vol. 6, No. 47 (Dec. 12, 2013). Read full article …