Articles By Topic
By Topic: Best Practices
From Vol. 9 No.39 (Oct. 6, 2016)
Former Prosecutors Address Trends in Cybersecurity for Alternative Asset Managers, Diligence When Acquiring a Company and Breach Response Considerations
Alternative asset managers must contend with numerous cybersecurity issues, including emerging threats; potential breaches in a pre-acquisition and post-acquisition context; special considerations for breaches of investor or consumer data; the handling of cybersecurity issues in the investment fund context; and the proper response to breaches. These topics were addressed in a recent panel hosted by Brian T. Davis and Dimitri G. Mastrocola, partners at international recruiting firm Major, Lindsey & Africa (MLA), and featuring Debevoise & Plimpton partners Luke Dembosky and Jim Pastore, both of whom are former federal prosecutors. This article highlights the key points from the presentation. For more on cybersecurity, see “Growing SEC Enforcement of Hedge Fund Managers Requires Greater Focus on Cybersecurity and Financial Disclosure” (Jul. 7, 2016); “SEC Chief of Staff Outlines Asset Management Initiatives on Cybersecurity and Transition Planning and Emphasizes Robust Enforcement Environment” (Jul. 7, 2016); and “SEC Guidance Update Suggests a Three-Step Framework for Investment Manager Cybersecurity Programs” (May 7, 2015). For coverage of a prior program hosted by MLA, see our two-part series on SEC examinations: “What Hedge Fund Managers Need to Know” (Jun. 16, 2016); and “Fees, Conflicts, Investment Allocations and Other Hot Topics” (Jun. 30, 2016).Read Full Article …
From Vol. 9 No.36 (Sep. 15, 2016)
In recent years, the SEC has targeted perceived fee and expense improprieties by private fund managers, with each enforcement action causing managers to fortify their internal practices in an attempt to avoid similar regulatory scrutiny. This increased SEC focus has also caused managers to proactively remedy improper fee or expense allocations revealed by their newly enhanced policies and procedures. This final article in our three-part series provides practical guidance about preventative measures fund managers can take to ensure fees and expenses are properly allocated, as well as post-violation efforts they can perform to remedy any improper allocations. Taken together, these can help managers ensure their procedures meet industry standards and may mitigate the severity of any future SEC sanctions. The first article in this series detailed trends in the types of expense allocations most aggressively scrutinized by the SEC. The second article in the series examined the role of inadequate disclosure and failed policies and procedures in causing expense allocation violations and provided steps managers can take to buttress each of those areas. For more on expense allocations, see “Fees, Conflicts, Investment Allocations and Other Hot Topics Hedge Fund Managers Should Expect During an SEC Examination (Part Two of Two)” (Jun. 30, 2016); and our two-part series entitled “How Should Hedge Fund Managers Approach the Allocation of Expenses Among Their Firms and Their Funds?”: Part One (May 2, 2013); and Part Two (May 9, 2013).Read Full Article …
From Vol. 9 No.35 (Sep. 8, 2016)
Flawed Disclosures to Avoid – and Policies and Procedures to Adopt – for Managers to Reduce Risk of SEC Scrutiny of Fee and Expense Practices (Part Two of Three)
Since early 2015, when it announced that private fund fee and expense allocation practices would be an enforcement priority, the SEC has pursued actions against managers for an array of improper fee and expense allocations. These enforcement actions frequently alleged inadequate disclosure or deficient policies and procedures. This article, the second in a three-part series, examines inadequacies in disclosures that often lead to SEC enforcement actions and provides guidance for how managers should disclose fee and expense allocations going forward. For more on disclosure to investors, see “Growing SEC Enforcement of Hedge Fund Managers Requires Greater Focus on Cybersecurity and Financial Disclosure” (Jul. 7, 2016); and “Are Hedge Fund Managers Required to Disclose the Existence or Outcome of Regulatory Examinations to Current or Potential Investors?” (Sep. 16, 2011). This article also summarizes the types of allocation scenarios and other recommended features managers should include in their written expense allocation policies and procedures. For additional coverage of manager compliance programs, see “Four Essential Elements of a Workable and Effective Hedge Fund Compliance Program” (Aug. 28, 2014). The first article in this series detailed trends in the types of expense allocations most aggressively scrutinized by the SEC. The third article will describe practices managers should adopt to prevent violations, as well as remedial actions to take upon discovering the improper allocation of a fee or expense. For additional coverage of expense allocations, see “Dechert Global Alternative Funds Symposium Highlights Trends in Hedge Fund Expense Allocations, Fees, Redemptions and Gates” (May 21, 2016); and “Barbash, Breslow and Rozenblit Discuss Hedge Fund Allocations, Restructurings and Advisory Boards” (Apr. 7, 2016).Read Full Article …
From Vol. 9 No.35 (Sep. 8, 2016)
How Studying SEC Enforcement Trends Can Help Hedge Fund Managers Prepare for SEC Examinations and Investigations
In a recent interview with The Hedge Fund Law Report, Patricia A. Poglinco and Robert G. Van Grover, partners at Seward & Kissel, discussed the types of activities the SEC is targeting when bringing enforcement actions against hedge and other fund managers. They also explored the evolving nature of SEC investigations and what hedge fund managers can do to prepare for these examinations. These are among the issues that Poglinco and Van Grover will explore in greater depth as they each moderate panels at the upcoming “Private Funds Forum” co-hosted by Seward & Kissel and Bloomberg BNA to be held on September 15, 2016. For additional insight from Poglinco, see “How Do Regulatory Investigations Affect the Hedge Fund Audit Process, Investor Redemptions, Reporting of Loss Contingencies and Management Representation Letters?” (Jan. 22, 2015). For commentary from Van Grover, see “Are Hedge Fund Managers Required to Disclose the Existence or Outcome of Regulatory Examinations to Current or Potential Investors?” (Sep. 16, 2011); “Implications for Hedge Fund Managers of Recent Insider Trading Enforcement Initiatives (Part One of Three)” (Feb. 25, 2011); and our three-part series entitled “How Can Hedge Fund Managers Structure Their In-House Marketing Activities to Avoid a Broker Registration Requirement?”: Part One (Sep. 12, 2013); Part Two (Sep. 19, 2013); and Part Three (Sep. 26, 2013).Read Full Article …
From Vol. 9 No.33 (Aug. 25, 2016)
Expense Allocation and Fee Practices Fund Managers Should Avoid to Reduce Risk of SEC Scrutiny (Part One of Three)
There were no specific regulations – and minimal SEC guidance – for fund managers to reference prior to 2015 when allocating expenses between themselves and their funds. To fill this void and protect investors, the SEC announced in 2015 and 2016 that private fund fee and expense practices would be a priority of its Office of Compliance Inspections and Examinations. A flurry of enforcement actions followed, targeting practices often viewed as “market” by hedge fund managers at the time. Fund managers must study those actions to date to ensure they do not commit the same violations highlighted by the SEC. To illuminate best practices for fund managers to avoid expense allocation violations, The Hedge Fund Law Report spoke with top practitioners in the industry and examined SEC enforcement actions and statements by SEC staff. This article, the first in a three-part series, outlines trends in the types of expense allocations most aggressively scrutinized by the SEC. The second article will examine the flaws in disclosures to investors and the gaps in policies and procedures of managers that frequently result in expense allocation violations. The third article will describe best practices fund managers should adopt to prevent violations, as well as remedial actions to take upon discovering the improper allocation of an expense. For additional coverage of expense allocations, see “Battle-Tested Best Practices for Private Fund Expense Allocations” (Oct. 10, 2014); and our two-part series entitled “How Should Hedge Fund Managers Approach the Allocation of Expenses Among Their Firms and Their Funds?”: Part One (May 2, 2013); and Part Two (May 9, 2013).Read Full Article …
From Vol. 9 No.31 (Aug. 4, 2016)
Best Practices for Hedge Fund Managers to Adopt in Anticipation of Enactment of FinCEN AML Rule Proposal
After more than a decade in the works, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury, released proposed rules in August 2015 that will subject registered investment advisers to anti-money laundering (AML) regulation once adopted. See our two-part series on how hedge fund managers can respond to the AML rules proposed by FinCEN: “Establish an AML Program” (Nov. 5, 2015); and “Operate an AML Program” (Nov. 12, 2015). Cadwalader, Wickersham & Taft recently presented a program examining the current AML regime, the requirements of the proposed rules and how those changes will affect hedge fund managers. The program featured Maureen Dollinger, a vice president of financial crime legal at Barclays; Adam Gehrie, general counsel and chief compliance officer (CCO) of Gresham Investment Management; and Cadwalader partners Dorothy Mehta and Joseph Moreno. This article highlights the portions of the panel’s discussion most relevant to hedge fund managers and other investment advisers. For further insight from Mehta, see our two-part series on SEC remote examinations: “What to Expect” (May 12, 2016); and “How to Prepare” (May 19, 2016); as well as “Practical Guidance for Hedge Fund Managers on Preparing For and Handling NFA Audits” (Oct. 17, 2014).Read Full Article …
From Vol. 9 No.29 (Jul. 21, 2016)
In an era when high-profile data theft cases have shaken some people’s faith in the security of personal information entrusted to fund managers, it is critically important for firms to take steps to detect, prevent and address such thefts by rogue employees. This is of particular urgency for hedge fund managers now that the SEC has stepped up its focus on cybersecurity. See “Growing SEC Enforcement of Hedge Fund Managers Requires Greater Focus on Cybersecurity and Financial Disclosure” (Jul. 7, 2016). Data security and the measures that can help safeguard trade secrets and sensitive information were the focus of a recent Hedge Fund Association (HFA) panel discussion. The participants were Mark Sidoti, director of the business and commercial litigation department and chair of the e-discovery task force at Gibbons; Paul Neale, chief executive officer of DOAR, Inc.; and Lisa Roitman, general counsel of Litespeed Partners. This article highlights the most salient points for hedge fund managers raised by the panel. For additional insight from the HFA, see “HFA Symposium Offers Perspectives From Cybersecurity Industry Professionals on Preparedness, Vendor Management, Cyber Insurance and Cloud Services” (Jul. 7, 2016); and our two-part series on the recent Global Regulatory Briefing, offering insight from U.S., U.K. and offshore regulators: “Best Ways for Hedge Fund Managers to Approach Regulation” (May 12, 2016); and “Views on Cybersecurity, AML, AIFMD, Advertising and Liquidity Issues Affecting Hedge Fund Managers” (May 19, 2016).Read Full Article …
From Vol. 2 No.16 (Apr. 23, 2009)
Will Hedge Fund Industry Self-Regulatory Codes, Such as the “Standards” Promulgated by The Hedge Fund Standards Board, Preempt Additional Hedge Fund Regulation or Complement It?
The increasingly frequent and occasionally shrill calls for government regulation of the hedge fund industry often ignore an important fact: the industry itself has promulgated various codes of conduct and best practices that are significantly more detailed, practicable and equitable to the various affected constituencies than any bill or rule thus far proposed in the U.S., U.K. or other jurisdiction. In the U.S., the President’s Working Group on Financial Markets in January issued its final reports on hedge fund best practices; the practices, if adopted, are intended to reduce systemic risk and improve investor protection. See “President’s Working Group Releases Final Best Practices Reports for Hedge Fund Managers and Investors,” The Hedge Fund Law Report, Vol. 2, No. 5 (Feb. 4, 2009). Along similar lines, the Hedge Fund Standards Board (HFSB) in the U.K. has adopted standards developed by the Hedge Fund Working Group, a predecessor organization, covering, among other things, disclosure, valuation, risk management, fund governance and shareholder conduct. Like the PWG, the HFSB is a voluntary, market-led initiative. For hedge funds, these various codes of conduct raise important issues, including: precisely how the codes operate; the pros and cons of signing on; similarities and differences between the different codes; and whether compliance with the codes will be required, either by law or the institutional investor market. This article explores each of these issues.Read Full Article …
From Vol. 2 No.5 (Feb. 4, 2009)
President’s Working Group Releases Final Best Practices Reports for Hedge Fund Managers and Investors
On January 16, 2009, two private sector committees, the Asset Managers’ Committee and Investors’ Committee of the President’s Working Group on Financial Markets released their final best practices reports. Drafts of each report were originally released on April 15, 2008 (as we reported in our April 29, 2008 issue) and were open to public comment for 60 days. The President’s Working Group modified the reports in response to comments received during the comment period and to address interim developments in global financial markets. Overall, the reports provide a comprehensive set of best practices for hedge fund managers and investors that are designed to reduce systemic risk and improve investor protection. We provide a detailed discussion of the material provisions of both reports.Read Full Article …
From Vol. 2 No.5 (Feb. 4, 2009)
What Has the Asset Managers’ Committee Report to say about Hedge Fund Valuation, Side Letters and PPM Updates?
As the ground continues to swell, especially in Washington, around the ideas of transparency and accountability in hedge fund practices, the Asset Managers’ Committee of the President’s Working Group on Financial Markets released on January 16, 2009 its final report on best practices for the hedge fund industry. To complement the detailed discussion of the Asset Managers’ Committee Report included in this issue of The Hedge Fund Law Report (see above), we delve deeper into three areas of the Asset Managers’ Committee Report, in the conviction that they can have a fundamental effect on hedge funds and their managers if the best practices outlined in the Report become law or rule, or acquire, de facto, the force of law or rule: valuation, side letters and private placement memorandum updates.Read Full Article …
From Vol. 1 No.11 (May 13, 2008)
Similar to the response of UK institutional investors to the UK Hedge Fund Working Group’s best practices report, US institutional investors are likely to require hedge fund managers to adopt the best practices embodied in the PWG's private sector committee reports.Read Full Article …
From Vol. 1 No.11 (May 13, 2008)
KPMG White Paper Summarizes Attitudes of UK Institutional Investor Community to UK Hedge Fund Working Group Best Practices Report
- According to a KPMG study, UK institutional investors are enthusiastic about best practices standards promulgated by the UK Hedge Fund Working Group.
- More than half of UK pension fund fiduciaries surveyed indicated that they would require hedge fund managers to comply with the standards within three years, and in the same period UK pension funds expect to double their asset allocations to hedge funds, from 4% to 8%.
From Vol. 1 No.9 (Apr. 29, 2008)
President’s Working Group’s Asset Managers’ and Investors’ Committees Release Best Practices Reports
- On April 15, 2008, two private sector committees established in September 2007 by the President’s Working Group on Financial Markets released separate yet complimentary sets of best practices for hedge fund asset managers and investors.
- The Asset Managers’ Committee Report counsels hedge funds to take a comprehensive approach to strengthening practices in “all phase of their business,” emphasizing controls and enhanced procedures in five critical areas: disclosure, valuation, risk management, trading and business operations and compliance, conflicts and business practices.
- The Investors’ Committee Report contains two parts - a Fiduciary’s Guide for fiduciaries considering an investment in hedge funds on behalf of their principals (e.g., pension funds), and an Investor’s Guide for executing and administering a hedge fund program.
From Vol. 1 No.5 (Mar. 31, 2008)
New York Court Denies Privilege for Communications Relating to the Common Interest of Joint Venture Partners Represented by the Same Counsel
- Unpublished opinion holds that in the case of joint attorney representation of co-venturers, attorney-client privilege may not be raised to prevent disclosure of communications relevant to the common interest of former joint clients in subsequent litigation.
- Case suggests that hedge funds entering into joint venture arrangements should consider retaining separate counsel or carefully define the scope of the representation in the engagement letter.
- Privilege takes effect only after the co-venturers’ interests clearly diverge.