Nov. 26, 2020

Five Articles Highlighting the Global Nature of the Hedge Fund Industry

Although the core of the hedge fund industry remains in the U.S., the space has become increasingly global in nature. According to a report from Prequin, as of November 2019, hedge fund managers based in North America had $2,783 billion in assets under management (AUM); those based in Europe had $673 billion in AUM; and those located in the Asia-Pacific region had $121 billion in AUM. In light of the Thanksgiving holiday in the U.S., this issue of the Hedge Fund Law Report features five articles from 2020 that highlight the global nature of the hedge fund industry. Next week (the week starting November 30, 2020), the HFLR will resume regular publication of new content focused on regulatory, compliance and related considerations applicable to hedge fund managers in the U.S., the E.U. and beyond.

ESG Considerations for Fund Managers: E.U. and Global Developments

Although there is increasing demand for investments that take into account environmental, social and governance (ESG) factors, ESG investing poses certain challenges for fund managers. A Dechert program examined the most pressing issues facing fund managers that are interested in pursuing ESG strategies. The program featured partners Julien Bourgeois; Andrew L. Oringer; Mark D. Perlow; Mikhaelle Schiappacasse; and Anthony S. Kelly, former Co‑Chief of the Asset Management Unit of the SEC’s Division of Enforcement. This article, the second in a two-part series, covers E.U and global ESG developments, including E.U. and global leadership; disclosure, taxonomy and low-carbon benchmarks regulations; and other E.U. initiatives. (The first article focuses on the U.S. regulatory landscape.) See “Survey Identifies Drivers and Obstacles for Sustainable Investing” (Apr. 2, 2020); and “Preparing for the Impact Revolution: How Fund Managers Can Implement the Philosophy of ‘Doing Well by Doing Good’” (Mar. 21, 2019).

Cayman Islands Administrative Fines: How the Regime Works and Key Considerations for Open‑End Funds

The Cayman Islands have had an administrative fines regime (Regime) since December 2017, following the introduction of the Monetary Authority (Administrative Fines), Regulations 2017 (as amended, the Regulations). Initially, the scope of the Regulations was limited to breaches of certain provisions of the Cayman Anti-Money Laundering Regulations (Revised), which, as Cayman Islands fund vehicles are subject to the Cayman anti-money laundering regime, potentially had application to Cayman funds. The Regulations, however, were extensively amended in June 2020, providing the Cayman Islands Monetary Authority with the power to impose administrative fines for breaches of a wide range of laws, regulations and rules. As a result, the Regime is of greater relevance to Cayman funds, whether open- or closed-end; fund managers that are established or registered in the Cayman Islands; and, in certain cases, even their individual directors. The first article in this two-part guest series by Sara Galletly and Alastair Lagrange, partner and associate, respectively, at Mourant, reviews the current scope of the Regime, looking briefly at the nature of the Regime and the procedures for imposing and appealing fines. The second article outlines the key considerations relevant to open-end Cayman funds and their managers, identifying some of the more common breaches that can result in fines, so that those breaches can be avoided. For a look at other recent Cayman regulatory changes, see “Cayman Makes Legislative Changes in Line With Global Transparency Drive” (Nov. 14, 2019); and “Cayman Economic Substance Has Arrived: Steps In-Scope Fund Managers Must Take to Respond” (Jun. 17, 2019).

ALFI Seminar: Navigating Changing E.U. Distribution, Marketing and AML Rules

A seminar presented by the Association of the Luxembourg Fund Industry (ALFI) featured panel discussions with representatives from financial services, asset management, legal and accounting firms. The seminar was hosted by ALFI deputy general director Marc‑André Bechet. The first article in this two-part series, covers the discussions on the impact of the coronavirus pandemic on Luxembourg’s funds industry; E.U. liquidity risk management measures; E.U. distribution challenges for U.S. fund managers; the E.U.’s incipient pre-marketing regime; AIFMD II; and European Long-Term Investment Funds. The second article reviews the discussions on marketing E.U. funds outside the E.U.; implementation of the Sustainable Finance Disclosure Regulation; the “digitalization” of financial services in the E.U.; and developments in Luxembourg’s and the E.U.’s anti-money laundering and counter-terrorist financing efforts. See “Distribution, Fundraising and Regulatory Environment in Luxembourg and the E.U.” (Feb. 27, 2020); and “KPMG Reports on AIFMD’s Efficacy Five Years After Implementation” (May 30, 2019).

Marketing EEA‑Domiciled Hedge Funds in the U.K. Post Brexit

Brexit will have significant implications for fund managers marketing non‑U.K. hedge funds into the U.K. In particular, implications will be felt by funds that are currently authorized under the E.U. Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. This guest article by Michael Newell and Michael Sholem, partner and special counsel, respectively, at Cadwalader, examines the U.K.’s Temporary Marketing Permissions Regime for both European Economic Area (EEA) alternative investment funds and EEA UCITS vehicles. The article also analyzes the U.K.’s proposed new Overseas Fund Regime for the marketing of non‑U.K. retail funds to U.K. investors. See “FCA Executive Director Outlines Regulator’s Brexit Preparations and Expectations for Fund Managers” (Aug. 2, 2018); and “Post-Brexit Environment Requires Fund Managers to Combine Granular Knowledge of Europe’s Varied Funds Markets With Appropriately Targeted Marketing Campaigns” (Mar. 2, 2017).

Key Legal and Structural Considerations for Asian Equity Investments

The favorable economic fundamentals of many growth-stage economies across the Asian region can provide tremendous investment opportunities for hedge funds and other investors. To generate good returns on a consistent basis, however, requires a deep understanding of the structural and legal issues that, in many cases, are unique to the countries in that region. For example, there is a greater tendency toward family control over listed and unlisted businesses in Asia in comparison to the U.S. or many European markets. In addition, the unique features of the legal and regulatory systems – which vary significantly across Asia – can, in some instances, either make or break investment returns. This guest article by Matthew Puhar, Daniel Cohen, Sonia Lor and Steven Franklin, attorneys at Akin Gump, examines several areas where knowing how best to navigate key legal and structural issues and opportunities in particular Asian jurisdictions can provide fund managers with a concrete investment edge and analyzes various topical examples. See “AIMA (Japan) and Eurekahedge Survey of Investors in Japan Reveals Concerns With Hedge Fund Manager Registration Requirements, the Volcker Rule and Success of ‘Abenomics’” (Jun. 23, 2016); “Roadmap to China’s New Shanghai-Hong Kong Stock Connect Program” (Nov. 20, 2014); and our two-part series “Structuring, Regulatory and Tax Guidance for Asia-Based Hedge Fund Managers Seeking to Raise Capital From U.S. Investors”: Part One (Aug. 9, 2012); and Part Two (Aug. 16, 2012).