Aug. 13, 2015

Tax, Legal and Operational Advantages of the Irish Collective Asset-Management Vehicle Structure for Hedge Funds

The Irish Collective Asset-management Vehicles Act came into operation in March 2015 and allows for the creation of an innovative, tax-efficient corporate structure for Irish investment funds which sits alongside existing Irish fund structures.  See “New Irish Fund Structure Offers Re-Domiciliation Possibilities and Tax Advantages for Hedge Funds,” Hedge Fund Law Report, Vol. 8, No. 10 (Mar. 12, 2015).  There has been widespread industry interest in the Irish collective asset-management vehicle (ICAV), with a number of leading asset managers such as Permal, Deutsche Bank and Legg Mason already having established ICAVs and a host of other asset managers in the process of either converting to or establishing new ICAVs.  Since the Central Bank of Ireland opened the ICAV register on March 16, 2015, there have been over 30 ICAVs authorized, representing in excess of $30 billion of inflows into Irish funds.  In a guest article, Ian Conlon of Maples and Calder explains the key features and advantages of the new ICAV structure and discusses how hedge fund managers can establish ICAVs, redomicile funds to Ireland and convert existing Irish fund vehicles so they can take advantage of the newly available structure.  For additional insight from Maples and Calder, 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); and “Use by Private Fund Managers of the British Virgin Islands for Private Equity Fund Formation and Private Equity Investments,” Hedge Fund Law Report, Vol. 5, No. 45 (Nov. 29, 2012).

ESMA Opinion Highlights Issues Regarding the Functioning of the AIFMD Passport

Currently, non-European hedge fund managers wishing to market or manage funds within the E.U. must comply with the national private placement regime (NPPR) of each Member State where market access is sought, as they are unable to take advantage of the European marketing passport under AIFMD.  To aid the European Parliament, Council and Commission in reaching a decision on the future of NPPRs and/or the potential extension of the AIFMD passport to non-E.U. alternative investment fund managers and non-E.U. alternative investment funds, the European Securities and Markets Authority (ESMA) recently issued an opinion on the functioning of the E.U. passport and the NPPRs.  The opinion ties in with ESMA’s concurrently issued advice regarding the extension of the passport.  See “ESMA Recommends Extension of the AIFMD Passport for Hedge Fund Managers and Funds in Certain Non-E.U. Jurisdictions,” Hedge Fund Law Report, Vol. 8, No. 31 (Aug. 6, 2015).  This article summarizes the methodology and data used by ESMA; highlights the issues identified and conclusions reached in the opinion; and examines stakeholder feedback regarding the functioning of the passport and NPPRs.  For more on the passport and NPPRs, 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); “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); and “Four Strategies for Hedge Fund Managers for Accessing EU Capital Under the AIFMD,” Hedge Fund Law Report, Vol. 7, No. 6 (Feb. 13, 2014). 

Government Petition to Supreme Court for Review of Newman/Chiasson Reversal Provides Insight into Prosecutorial View of Insider Trading

Under well-established precedent, a key element of tipper-tippee insider trading liability is that the insider (tipper) must receive some personal benefit from the tip; a benefit may be inferred from a gift of information to a relative or friend.  In December 2014, the U.S. Court of Appeals for the Second Circuit (Second Circuit) reversed the insider trading convictions of Todd Newman and Anthony Chiasson, hedge fund portfolio managers who had been convicted of trading on inside information on Dell and NVIDIA earnings, finding that the Government had failed to prove awareness of such benefit.  See “Second Circuit Overturns Newman and Chiasson Convictions, Raising Government’s Burden of Proof in Tippee Liability Insider Trading Cases,” Hedge Fund Law Report, Vol. 7, No. 47 (Dec. 18, 2014).  The Government has petitioned the Supreme Court to review the Second Circuit’s decision.  This article summarizes the Government’s petition, with an emphasis on its arguments as to why the Supreme Court should take the appeal.  For a discussion of the practical effect of the decision, see “The Newman/Chiasson Decision Continues to Have Implications for Insider Trading Compliance,” Hedge Fund Law Report, Vol. 8, No. 17 (Apr. 30, 2015).  For coverage of the civil enforcement actions relating to the alleged insider trading, see “SEC Files Civil Insider Trading Complaint Against Diamondback Capital Management, Level Global Investors and Seven Individuals Based on Trading in Dell and Nvidia; Diamondback Strikes Non-Prosecution Deal with U.S. Department of Justice and Settles with the SEC for $9 Million,” Hedge Fund Law Report, Vol. 5, No. 4 (Jan. 26, 2012); and “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).

ISDA Guidance Helps Hedge Fund Managers Determine EMIR Classifications

Hedge fund managers trading derivatives with an E.U. counterparty are subject to the European Market Infrastructure Regulation (EMIR).  However, the classification of the hedge fund may affect the clearing, reporting and/or risk mitigation provisions of EMIR to which the trade is subject.  See “Comparing and Contrasting EMIR and Dodd-Frank OTC Derivatives Reforms and Their Impact on Hedge Fund Managers,” Hedge Fund Law Report, Vol. 6, No. 36 (Sep. 19, 2013).  Thus, it is important for hedge fund managers and other asset managers to understand how their funds are classified under EMIR, as well as to communicate that status to counterparties.  The International Swaps and Derivatives Association, Inc. (ISDA) recently issued a sample form of classification letter that a party to an OTC derivative subject to EMIR may use to advise counterparties of the party’s classification under EMIR.  In addition, ISDA issued an explanatory memorandum that provides line-by-line guidance for completing the classification letter.  This article summarizes the essential requirements of the classification letter and the key provisions of the memorandum.  For more on EMIR, see “EMIR Offers Three Models of Asset Segregation to Fund Managers That Trade OTC Derivatives,” Hedge Fund Law Report, Vol. 8, No. 15 (Apr. 16, 2015).

Citi Survey Examines Hedge Fund Manager Solutions for Institutional Investors and Retail Investors (Part Three of Three)

In light of the evolution of institutional investor portfolio construction over the past 50 years, hedge fund managers must adapt their offerings to ensure that they can meet the needs of institutional investors.  In addition, innovations have allowed asset managers to offer portfolio management services to retail investors.  These issues were addressed by Citi Business Advisory Services (Citi) in its sixth annual asset management Industry Evolution Report.  This article, the third in a three-part series, explores how asset managers may tailor their product offerings and marketing efforts to meet the evolving needs of institutional investors and how they may offer “institutional” portfolio construction to retail investors.  The first article discussed the methodology employed by Citi in conducting its survey; tracked the evolution of modern portfolio theory; examined portfolio weaknesses exposed by the global financial crisis; and reviewed the alignment by investors of their portfolios to certain risk factors.  The second article covered Citi’s assessment of investment managers’ adaptation of their products to investors’ needs and the evolution of hedge funds following the global financial crisis.  For additional insight from Citi, see “Citi Survey Finds Large Drop in Hedge Fund Profitability from 2013 to 2014, Highlighting the Importance of Management Fee Revenue and Its Impact on Product Strategy and Management Company Valuations (Part Two of Two),” Hedge Fund Law Report, Vol. 8, No. 7 (Feb. 19, 2015).

E.U. Commission Publishes Regulations Setting Forth Clearing Obligations for Hedge Funds and Other Counterparties

The European Commission has published a draft Delegated Regulation (Regulation) setting out regulatory technical standards to supplement the clearing obligations imposed by European regulations relating to market infrastructure.  The draft Regulation specifies the classes of over-the-counter derivatives that should be subject to clearing; the dates from which the obligations will take effect for various types of counterparties, including clearing members, alternative investment funds and other financial counterparties; the minimum remaining maturities for the purposes of regulatory “frontloading” requirements; and the dates on which frontloading should start.  This article provides a summary of the Regulation.  For more on European regulatory obligations with respect to derivatives, see “Ropes & Gray Attorneys Discuss Implications for U.S. Hedge Fund Managers of the European Market Infrastructure Regulation,” Hedge Fund Law Report, Vol. 7, No. 27 (Jul. 18, 2014); and “How Have Dodd-Frank and European Union Derivatives Trading Reforms Impacted Hedge Fund Managers That Trade Swaps?,” Hedge Fund Law Report, Vol. 6, No. 40 (Oct. 17, 2013).

K&L Gates Adds Edward Dartley to Investment Management Practice in New York

On August 6, 2015, K&L Gates announced that Edward Dartley has joined as a partner in the investment management, hedge funds and alternative investments and private equity practices.  For insight from the firm, see “K&L Gates Partners Outline Six Compliance Requirements and Four Enforcement Themes for Private Fund Advisers (Part Three of Three),” Hedge Fund Law Report, Vol. 8, No. 1 (Jan. 8, 2015); and “Key Investment and Operational Restrictions Imposed on Alternative Mutual Funds by the Investment Company Act of 1940 (Part Two of Two),” Vol. 7, No. 25 (Jun. 27, 2014).  Dartley’s practice spans the asset management industry, with particular focus on alternative investment asset classes; private equity and venture capital funds; managed accounts; regulatory, compliance and operational matters; and compliance audits.  

Jeremy I. Bohrer Joins Brown Rudnick in New York

Brown Rudnick recently announced that Jeremy I. Bohrer has joined the firm as a partner in the corporate and capital markets practice, resident in the New York office.  For commentary from Brown Rudnick partners, see “The Newman-Chiasson Decision: Cold Comfort for Hedge Fund Managers,” Hedge Fund Law Report, Vol. 7, No. 47 (Dec. 18, 2014); and “Coercive Exchanges: How Hedge Fund Noteholders Can Salvage Value Under Duress,” Hedge Fund Law Report, Vol. 6, No. 23 (Jun. 6, 2013).  Bohrer focuses on providing his clients with advice ranging from SEC/DOJ investigations and high-profile white collar defense matters; regulatory and enterprise risk assessment and management; crisis management; reputational matters; and press relations, to fund formation and partnership issues; compensation and HR issues; counterparty relationships; portfolio transactions; investor activism; and strategic deals and combinations.

The HFLR Will Not Publish an Issue Next Week and Will Resume Its Regular Publication Schedule the Following Week

Please note that the HFLR will not publish an issue during the week beginning Monday, August 17, 2015, and will resume its regular publication schedule the following week, the week starting Monday, August 24, 2015.