May 28, 2015

MiFID II Expands MiFID I and Imposes Reporting Requirements on Asset Managers, Including Non-E.U. Asset Managers

The Markets in Financial Instruments Directive (MiFID I) is being recast as MiFID II and MiFIR (together, MiFID II) to form the legal framework governing requirements applicable to investment firms, trading venues, data reporting service providers and third-country firms providing investment services in the E.U.  MiFID II broadly expands MiFID I and will have a significant impact on all asset managers, not just E.U. firms.  In a guest article, Jeanette Turner, managing director and general counsel at Advise Technologies, LLC, provides an introduction to the MiFID II reporting requirements affecting asset managers.  On Wednesday, June 10, 2015, from 10:00 a.m. to 11:00 a.m. EDT, Turner will expand on the thoughts in this article – as well as other areas of MiFID II that affect asset managers – in a webinar entitled “A Practical Introduction to MiFID II for Asset Managers: What You Need to Know Now,” which will be moderated by the Hedge Fund Law Report.  She will be joined in that webinar by Simon Whiteside, a partner at Simmons & Simmons.  To register for the webinar, click here.  For further insight from Turner, see “Seven Tips and Lessons Learned from January 2015 AIFMD Filers,” Hedge Fund Law Report, Vol. 8, No. 6 (Feb. 12, 2015); and “HFLR-Advise Technologies Panel Explores AIFMD Marketing and Annex IV Reporting Requirements,” Hedge Fund Law Report, Vol. 8, No. 2 (Jan. 15, 2015).  Hedge Fund Law Report interviewed Turner in “Key Pain Points in AIFMD Annex IV Reporting and Proven Strategies for Surmounting Them,” Hedge Fund Law Report, Vol. 7, No. 44 (Nov. 20, 2014); and she co-authored “A Practical Comparison of Reporting Under AIFMD versus Form PF,” Hedge Fund Law Report, Vol. 7, No. 41 (Oct. 30, 2014).

Cayman Islands Decision Highlights Three Questions That May Affect the Enforceability of Fund Side Letters

Investment managers, funds and investors – particularly high value investors – often wish to enter into arrangements (side letters) relating to a specific investment conferring rights more beneficial than the raft of rights given to all investors, as an inducement to invest.  However, several cases in the Cayman Islands Grand Court in recent years, as well as a decision of the Cayman Islands Court of Appeal in April 2015, have raised questions as to the enforceability and legality of these side letters.  In a guest article, Christopher Russell and Jeremy Snead of Appleby (Cayman) examine the practical considerations for funds, managers and investors in crafting side letters, including the three fundamental questions that must be considered when entering into a side letter, in light of the Cayman Islands case law.  For additional insight from Russell and Snead, see “How Can Investors in Cayman Hedge Funds Maximize Protection of Their Investments When the Fund Is Near or At the End of Its Life? (Part One of Two),” Hedge Fund Law Report, Vol. 6, No. 46 (Dec. 5, 2013); and Part Two of Two, Vol. 6, No. 47 (Dec. 12, 2013); “Pitfalls and Solutions in Trading Shares in Corporate Hedge Funds in Liquidation in the Cayman Islands,” Hedge Fund Law Report, Vol. 5, No. 41 (Oct. 25, 2012); and “Fund Misrepresentations Inducing Investment: Claims and Remedies Available to Fund Investors and Protections Available to Promoters, Fund Managers and Directors,” Hedge Fund Law Report, Vol. 5, No. 35 (Sep. 13, 2012).

Dechert Global Alternative Funds Symposium Highlights Trends in European and Global Hedge Fund Marketing

As the global market for hedge funds increases, managers looking to raise assets in Europe and other non-U.S. jurisdictions must be aware of the rules and regulations of the jurisdictions of their fundraising targets.  AIFMD and increased regulations enacted by countries in Latin America and the Middle East impose additional registration, disclosure and reporting obligations on fund managers.  Prior to marketing in those jurisdictions, managers must be sure to comply with applicable regulatory requirements.  These challenges, and other trends in the hedge fund market and regulatory environment, were significant issues discussed during Dechert’s Global Alternative Funds Symposium recently held in New York City.  This article highlights the salient points discussed on the foregoing topics.  See “Passports, Platforms and Private Placement: Options for Marketing Funds in Europe in the Post-AIFMD Era,” Hedge Fund Law Report, Vol. 8, No. 17 (Apr. 30, 2015).  For additional coverage of the Symposium, see “Dechert Global Alternative Funds Symposium Highlights Trends in Hedge Fund Expense Allocations, Fees, Redemptions and Gates,” Hedge Fund Law Report, Vol. 8, No. 20 (May 21, 2015).

K&L Gates-IAA Panel Addresses Regulatory Compliance and Practical Elements of Cybersecurity Testing (Part Two of Two)

Although not explicitly required by SEC regulations, hedge fund managers are expected to undertake testing for cybersecurity vulnerabilities and preparedness as part of their overall regulatory compliance responsibilities.  See also “ACA Compliance Professionals and SEC Veteran John H. Walsh Share Insights on SEC Priorities for 2015,” Hedge Fund Law Report, Vol. 8, No. 16 (Apr. 23, 2015).  Such testing was recently considered in depth at a program sponsored by K&L Gates and the Investment Adviser Association (IAA).  The program was the third installment of the sponsors’ Investment Management Cybersecurity Seminar Series and was moderated by Mark C. Amorosi, a partner at K&L Gates.  The other speakers were Laura L. Grossman, assistant general counsel at IAA; Jason Harrell, corporate senior information risk officer at BNY Mellon; Jeromie Jackson, director of security & analytics at Nth Generation; and K&L Gates partners Jeffrey B. Maletta and Andras P. Teleki.  This article, the second in a two-part series, discusses testing approaches; vulnerability assessments; penetration testing; and recent SEC and private litigation on cybersecurity matters.  The first article summarized the panelists’ discussion of the legal and compliance framework for cybersecurity testing; testing considerations; and how to leverage OCIE’s recent cybersecurity examination initiative to improve cybersecurity compliance and testing.  For additional insight from K&L Gates, see “Experts Offer Advice on Initiating and Structuring M&A Transactions in the Asset Management Industry (Part One of Two),” Hedge Fund Law Report, Vol. 8, No. 18 (May 7, 2015); and Part Two of Two, Vol. 8, No. 19 (May 14, 2015).

WilmerHale Attorneys Discuss FCPA Concerns for Private Fund Managers (Part One of Two)

The U.S. has taken the lead in anti-corruption efforts through its vigorous enforcement of the Foreign Corrupt Practices Act (FCPA), and in recent years, regulators around the globe have started to follow suit.  See “Anti-Bribery Compliance for Private Fund Managers,” Hedge Fund Law Report, Vol. 4, No. 39 (Nov. 3, 2011).  This article, the first in a two-part series, identifies the two primary types of corruption risks faced by hedge fund managers, summarizes fundamental provisions of the FCPA and highlights key points from a recent program on the current U.S. and global anti-corruption enforcement climate.  The program featured Kimberly A. Parker and Erin G.H. Sloane, both partners at WilmerHale.  The second article will discuss FCPA risks of particular concern to hedge fund managers, as identified by Parker and Sloane, and summarize recent FCPA enforcement actions involving financial institutions. 

Acting OCIE Director Discusses the Office’s Focus on Private Equity Managers and Emphasizes the Importance of Disclosure by Advisers

The SEC’s Office of Compliance Inspections and Examinations (OCIE) protects investors by administering the SEC’s nationwide examination and inspection program.  In his first speech as acting director of OCIE, Marc Wyatt reviewed OCIE’s activities since the enactment of Dodd-Frank, particularly during the last year, and described anticipated OCIE activity in the private equity space.  For coverage of a speech by Wyatt’s predecessor, see “OCIE Director Andrew Bowden Describes the Primary Compliance Failings of Private Equity Managers with Respect to Fees, Expenses, Limited Partnership Agreements, Valuation and Marketing,” Hedge Fund Law Report, Vol. 7, No. 19 (May 16, 2014).

Duncan Woollard Joins Paul Hastings in London

Paul Hastings recently announced that Duncan Woollard will join the London office as a partner in its corporate practice.  Woollard advises on a wide range of private equity and fund structuring matters, and his practice encompasses advice to general partners, institutional investors and investment advisers with respect to complex fund-raisings.  For insight from the firm, see “How Hedge Fund Managers Can Use Arbitration Provisions to Prevent Investor Class Action Lawsuits,” Hedge Fund Law Report, Vol. 5, No. 26 (Jun. 28, 2012); and “Paul Hastings Hosts Program on Securities Litigation and Enforcement in Light of New SEC Initiatives to Enhance Enforcement Efforts and Encourage Witness Cooperation,” Hedge Fund Law Report, Vol. 3, No. 6 (Feb. 11, 2010).