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    Jun. 16, 2016

Marketing and Reporting Considerations for Emerging Hedge Fund Managers

In order to survive and flourish in a market dominated by large, well-established competitors, emerging hedge fund managers must be well versed in the risks and potential dangers of raising funds and be mindful of regulatory compliance blunders, such as incomplete disclosures, insufficient controls and inadequate policies and procedures. See “How Can Emerging Managers Raise Institutional Capital While Avoiding Regulatory Pitfalls?” (Aug. 22, 2013). Pepper Hamilton recently hosted a symposium focusing on a number of these risks and offering practical solutions. Moderated by partner Irwin Latner, the panel discussion featured Adil Abdulali, senior managing director of risk management for Protégé Partners; Christopher Edgar, managing director, capital solutions, for Convergex Prime Services; Andrew Goodman, a partner at Infusion Global Partners; and Chris Lombardy, a managing director at Duff & Phelps. This article highlights the key points raised by the panel. Other articles addressing issues faced by emerging managers include: “Establishing a Hedge Fund Manager in Seventeen Steps” (Aug. 27, 2015); and “Stars in Transition: A New Generation of Private Fund Managers” (Dec. 10, 2009).

Operational Challenges for Private Fund Managers Considering Subscription Credit and Other Financing Facilities (Part Three of Three)

As subscription credit facilities and other financing facilities become more prevalent in the industry, hedge fund and other private fund managers seeking to use them on their funds’ behalf must be mindful of the operational complexities that attend those structures. In addition to finding the right geographical market, managers must negotiate favorable provisions in facility documents and be wary of such a facility’s risks, including consequences of default. In a recent interview with the Hedge Fund Law Report, Zac Barnett and Liz Soutter, partners at Mayer Brown, discussed subscription financing facilities and other debt facilities used by funds. In this final article in a three-part series, the partners outline geographical, structuring and operational considerations managers should bear in mind when establishing financing facilities. The first article examined subscription facilities, including their prevalence in the asset management industry, investor response to these structures and primary considerations for managers anticipating entering into a facility. The second article explored other types of financing facilities, such as fund-of-fund facilities, portfolio acquisition facilities and general partner support facilities, and their evolution in the current market. For insight from other Mayer Brown attorneys, see “Private Equity FCPA Enforcement: High Risk or Hype?” (Feb. 19, 2015).

What Hedge Fund Managers Need to Know About Getting Through an SEC Examination (Part One of Two)

The SEC continues to assert its regulatory authority by probing hedge fund managers and other registered investment advisers to private funds. See “Effects of Expanding SEC Investment Adviser Examinations” (Mar. 24, 2016). Managers must prepare to withstand this increased scrutiny and respond accordingly. To assist hedge fund managers in this preparation, Brian T. Davis and Dimitri G. Mastrocola, partners at international recruiting firm Major, Lindsey & Africa, hosted a panel discussion featuring Ropes & Gray partners Eva Carman, Sarah Davidoff and Joel Wattenbarger. This article, the first in a two-part series, summarizes the panel’s insights on effectively navigating the SEC examination process. The second article will highlight key areas of SEC focus, including requests for email; conflicts of interest; allocation of fees, expenses and investment opportunities; valuation; cybersecurity; broker-dealer registration; and attorney-client privilege. For additional insight from Carman and Wattenbarger, see “Insights Gleaned From Successfully Navigating Presence Examinations With Hedge Fund Manager Clients” (Mar. 7, 2013). For insight from Davidoff, see “The Impact on Private Fund Managers of Final Regulations Under the Volcker Rule” (Mar. 13, 2014). 

Legal and Regulatory Issues Faced by U.S.-Based Managers When Establishing U.K.-Listed Funds (Part Two of Two)

Although U.S.-based managers may come to London for relatively greater regulatory flexibility offered by the U.K.-listed funds markets (as compared to U.S. public securities markets), listing the shares of a closed-end fund on a U.K. market does not necessarily free the manager from compliance with U.S. securities laws. In a two-part guest series, Tim West and Dinesh Banani, partners at Herbert Smith Freehills, provide a practical overview of key issues facing U.S.-based managers considering listing a fund in the U.K. The first article explored listing and eligibility requirements for popular U.K. listing venues, continuing obligations for U.K.-listed funds, structuring and jurisdictional considerations and marketing under the Alternative Investment Fund Managers Directive. This second article examines how certain U.S. securities laws would impact U.K. listing of closed-end fund shares by a U.S.-based manager. For more regarding listing funds, see “Liquidity, Transparency and Performance Considerations for Hedge Fund Managers Launching UCITS Funds (Part One of Two)” (Dec. 10, 2015). 

SEC Settlement Order Reignites Concerns Over Whether Private Fund Managers Must Register As Brokers

One hallmark of being a “broker” is the receipt of transaction-based compensation. In 2013, the SEC’s David W. Blass suggested that a private equity fund manager that receives transaction-based fees in connection with a fund’s acquisition of portfolio companies should register as a broker under the Securities Exchange Act of 1934. Since then, there has not been conclusive guidance from the SEC on the topic. A recent settlement with a private equity fund manager that allegedly received transaction-based compensation and engaged in traditional brokerage activities has brought the issue back into the spotlight. This article summarizes the facts that led up to the SEC’s action, alleged violations and terms of the settlement. For more on the relationship between transaction-based compensation and broker registration, see “SEC No Action Letter Suggests That There May Be Circumstances in Which Recipients of Transaction-Based Compensation Do Not Have to Register As Brokers” (Feb. 21, 2014); and “Do In-House Marketing Activities and Investment Banking Services Performed by Private Fund Managers Require Broker Registration?” (Apr. 18, 2013).

SEC Chair’s Testimony Highlights SEC’s Bolstered Presence in Asset Management Space

The Securities and Exchange Commission reached the end of 2015 with a record number of examinations completed and a significantly enhanced presence in several key areas of asset management. See “OCIE Outlines Examination Priorities for 2016” (Jan. 14, 2016). But the Commission’s progress to promote compliance with securities laws and greater transparency and fairness for investors may be stunted by insufficient resources. This point was made by SEC Chair Mary Jo White during her June 14 testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. This article highlights the portions of White’s testimony most relevant to hedge fund managers. For analysis of prior public statements by White regarding hedge fund issues, see “SEC Chair Outlines Expectations for Fund Directors” (Apr. 7, 2016); “SEC Chair Highlights Two Types of Risks Hedge Fund Managers Must Consider” (Oct. 29, 2015); and “SEC Chair White Describes the SEC’s Game Plan With Respect to the Asset Management Industry” (Dec. 18, 2014).

DLA Piper Expands Investment Management Practice in Philadelphia

DLA Piper has bolstered its investment management practice in Philadelphia by hiring John Grady, who advises registered and unregistered funds, investment advisers and sponsors on fund formation, as well as tax, ERISA and other regulatory matters. For insight from the firm, see “DLA Piper Compliance Survey Offers Perspectives to Hedge Fund Managers on CCO Liability and Compliance Program Benchmarks” (May 26, 2016); and “DLA Piper Hedge Fund Valuation Webinar Covers Fair Value Methodologies, Valuation Services, Valuing Illiquid Positions and Handling Valuation Inquiries During SEC Examinations” (Aug. 7, 2013). 

Former Sadis & Goldberg Partner Joins Phoenix Investment Adviser

Sadis & Goldberg recently announced that Lance S. Friedler will be joining the firm’s client, Phoenix Investment Adviser, as general counsel and chief compliance officer. For coverage of Sadis & Goldberg’s alternative investment seminar, see “How Hedge Fund Managers Can Raise Capital and Expand Despite Increasing Regulation and Investor Demands” (Feb. 4, 2016); and “Hedge Fund Managers Advised to Prepare for Imminent SEC Examination” (Jan. 28, 2016).

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