Mar. 10, 2016

New Cayman Islands LLC Structure Offers Flexibility to Hedge Fund Managers

On December 18, 2015, Cayman Islands authorities published a bill for a new law that allows for the formation of Cayman Islands limited liability companies (Cayman LLCs). Similar to a Delaware limited liability company, the Cayman LLC provides managers with additional flexibility and options for forming hedge funds in the Cayman Islands. In a recent interview with the Hedge Fund Law Report, Jude Scott, the Chief Executive Officer of Cayman Finance; Henry Smith, a partner at Maples and Calder and Chair of the International Relations Committee of Cayman Finance; and Hon. Wayne Panton, Minister of Financial Services, Commerce and Environment for the Cayman Islands Government, discussed the Cayman LLC, detailing the new vehicle’s requirements, potential uses and implications for hedge fund managers. In addition, Scott, Smith and Minister Panton discussed the possibility of the AIFMD marketing passport being extended to the Cayman Islands. For other issues relating to structuring Cayman Islands hedge funds, see “Cayman Islands Government Introduces Bill That Would Require Registration and Licensing of Certain Hedge Fund Directors” (Mar. 28, 2014); and “Cayman Islands Segregated Portfolio Companies: New Case Law Highlights Attractions for Promoters and Hedge Fund Managers” (Jul. 26, 2012).

Steps All Investment Advisers – and Their Compliance Officers – Should Take in Light of the SEC’s Risk Alert on Outsourced CCOs (Part Two of Two)

The SEC remains keenly concerned with ensuring that hedge fund managers and other regulated firms devote sufficient resources to compliance. See “SEC Chief of Staff Offers Nine Key Considerations for Investment Adviser and Broker-Dealer Compliance Officers” (Oct. 22, 2015). In November 2015, the SEC Office of Compliance Inspections and Examinations issued a Risk Alert describing its recent “Outsourced CCO Initiative” and highlighting compliance issues observed at firms that outsourced their CCO function. However, all investment advisers, investment companies and their compliance officers – in-house as well as at third parties – can learn from the Risk Alert, using the issues it addresses to enhance their internal compliance programs. In this two-part guest series, Andrew W. Reich, counsel at BakerHostetler, offers guidance on the issues in the Risk Alert applicable to all investment advisers and investment companies as well as their CCOs, along with the application of those issues to their compliance programs. This second article addresses written policies and procedures and suggests steps for firms to enhance their culture of compliance. The first article explored the background that gave rise to the Risk Alert; allocation of resources to compliance; and CCO independence and empowerment. For more on outsourcing CCO responsibilities, see “The Role of Outsourced Compliance Consultants in the Hedge Fund Compliance Ecosystem” (Jun. 27, 2014); and our two-part series on in-house staff at hedge fund managers: “The Value of Legal and Compliance Staff” (Mar. 12, 2015); and “Trends in Legal and Compliance Hiring and Staffing” (Mar. 19, 2015).

Barclays Survey Finds Increasing Hedge Fund Liquidity and Decreasing Hedge Fund Fees

Barclays Capital Solutions Group recently published the results of its survey exploring the terms governing the relationship between hedge fund managers and their investors. The survey details Barclays’ findings with respect to hedge fund structures, liquidity, transparency, fees and AUM growth, all of which are important benchmarks that can help a fund manager to see where it stands in relation to its peers. Among Barclays’ findings, the survey noted that redemption time for hedge fund investors, as well as fees charged by hedge funds, have decreased. This article discusses these and other key findings of Barclays’ survey. For coverage of prior research conducted by Barclays, see “Options for Hedge Fund Managers in the Alternative Mutual Fund Space” (Apr. 11, 2014); “Family Office Perspectives on Hedge Fund Allocation Percentages, Strategies, Liquidity, Fees, Track Record and Investor Base” (Nov. 14, 2013); and “Barclays Predicts Increased Financing Costs for Hedge Funds Due to Regulatory Changes Affecting Prime Broker Financing” (Oct. 18, 2012).

Current and Former Directors of SEC Division of Investment Management Discuss Hot Topics Under the Investment Company Act

The Practising Law Institute’s 2016 Investment Management Institute began with a keynote address by David Grim, the current Director of the SEC Division of Investment Management, followed by a panel discussion with two former Directors of that Division: Barry P. Barbash, now a partner at Willkie, and Paul F. Roye, currently a director of Capital Research and Management Company. Grim’s address focused on four important topics that had been discussed at the SEC program commemorating the 75th anniversary of the Investment Company Act and the Investment Advisers Act: exchange-traded funds; private fund advisers; disclosure and reporting; and the role of a fund’s board in oversight. The panel then focused on recent SEC rulemaking initiatives that affect mutual funds. This article encapsulates the key takeaways from their discussions. For more on exchange-traded funds, see “SEC Commissioner Calls for Increased Transparency and Accountability in Capital Markets” (Mar. 3, 2016).

Practical Steps That Commodity-Focused Hedge Fund Managers Can Take to Combat Cybersecurity Threats

Cybersecurity threats against hedge fund managers grow ever more sophisticated. Accordingly, the NFA’s Interpretive Notice on cybersecurity, which became effective on March 1, 2016, calls for NFA members, including hedge fund managers registered with the NFA as commodity pool operators or commodity trading advisers, to adopt an Information Systems Security Program robust enough to guard against these increasing threats. See “PLI Panel Addresses Cybersecurity and Swaps Regulation” (Nov. 5, 2015). To assist members with those preparations, the NFA recently held a “Cybersecurity Workshop” featuring senior NFA personnel and industry experts. Among other topics, panelists discussed critical cybersecurity threats, response plans, training and other practical cybersecurity measures. This article summarizes the panelists’ discussion of these issues. For additional coverage of the NFA’s Cybersecurity Workshop, see “Hedge Fund Managers Face Imminent NFA Cybersecurity Deadline” (Feb. 25, 2016).

ESMA Provides Hedge Fund Managers With Plan for Supervisory Convergence

The European Securities and Markets Authority (ESMA) recently published its Supervisory Convergence Work Programme for 2016 (2016 SCWP), which supplements its Annual Work Programme for 2016. See “ESMA Work Programme Provides Hedge Fund Managers With Key Guidance About E.U. Financial Services Legislation” (Oct. 15, 2015). Describing steps ESMA will take in 2016 to “promote sound, efficient and consistent supervision in the E.U.” and describing ESMA’s priorities in the context of the wider work programme and environment, the 2016 SCWP provides hedge fund managers and other industry participants with detailed insight into the regulator’s areas of focus for the coming year, along with planned activities and initiatives. This article highlights the fundamental points from the 2016 SCWP. For more about supervisory convergence, see “ESMA Chair Calls for Increased Transparency and Regulatory Convergence As Interest Rates Rise” (Jan. 28, 2016). See also “FCA Director Summarizes 2015 Regulatory Initiatives Applicable to Hedge Fund Managers and Financial Markets” (Jan. 7, 2016).

Aaron Schlaphoff Joins Kirkland & Ellis

Aaron Schlaphoff recently joined Kirkland & Ellis in New York as a partner in its private funds group. Schlaphoff has broad public and private sector experience related to the investment management industry. He joins from the SEC, where he was an attorney fellow in the Division of Investment Management. For insight from Schlaphoff, see “PLI Panel Addresses Operational Due Diligence and Registered Alternative Funds” (Dec. 10, 2015).

K&L Gates Adds Peter Shea to Its Investment Management Practice in New York

K&L Gates has added Peter J. Shea as a partner in the firm’s investment management, hedge funds and alternative investments practice. Shea advises on matters involving fund formation, registration and compliance; broker-dealer requirements; the creation and operation of hedge funds, distressed asset funds and other private investment vehicles; public and private debt equity offerings; and the formation and financing of start-up companies. For insight from K&L Gates practitioners, see “K&L Gates Partners Outline Six Compliance Requirements and Four Enforcement Themes for Private Fund Advisers (Part Three of Three)” (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)” (Jun. 27, 2014).