The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Family Offices

  • From Vol. 9 No.33 (Aug. 25, 2016)

    Perspectives From In-House and Private Practice: Cadwalader Special Counsel Garret Filler Discusses Family Offices, Broker-Dealer Registration Issues and Impact of Capital, Liquidity and Margin Requirements (Part Two of Two)

    The Hedge Fund Law Report recently interviewed Garret Filler in connection with his recent return to Cadwalader, Wickersham & Taft. As special counsel in the firm’s New York office, Filler represents both start-up and established hedge funds and private equity funds, as well as family offices, banks and broker-dealers. This article, the second in a two-part series, sets forth Filler’s thoughts on family offices transitioning to asset managers; broker-dealer registration issues for fund managers; considerations when negotiating counterparty agreements; the implications to hedge funds of increased capital and liquidity requirements for banks and broker-dealers; and the impact of new margin requirements for uncleared derivatives. In the first installment, Filler discussed the cultures of private fund managers; selection of outside counsel, including law firm relationships with regulators and their willingness to enter into alternative fee arrangements; and counterparty risk. For additional insight from Cadwalader partners, see “Practical Guidance for Hedge Fund Managers on Preparing for and Handling NFA Audits” (Oct. 17, 2014).

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  • From Vol. 9 No.32 (Aug. 11, 2016)

    Perspectives From In-House and Private Practice: Cadwalader Special Counsel Garret Filler Discusses Hedge Fund Culture, Law Firm Selection and Counterparty Risk (Part One of Two)

    Garret Filler recently rejoined Cadwalader, Wickersham & Taft as special counsel in the firm’s New York office, where he represents both start-up and established hedge funds and private equity funds, as well as family offices, banks and broker-dealers. The Hedge Fund Law Report recently interviewed Filler in connection with his return to Cadwalader, during which he discussed numerous topics of import to hedge fund managers. This article, the first in a two-part series, sets forth Filler’s thoughts on the cultures of private fund managers; selection of outside counsel, including law firm relationships with regulators and their willingness to enter into alternative fee arrangements; and counterparty risk. In the second installment, Filler will discuss family office transitions into asset managers; broker-dealer registration issues for fund managers; considerations when negotiating counterparty agreements; the implications to hedge funds of increased capital and liquidity requirements for banks and broker-dealers; and the impact of new margin requirements for uncleared derivatives. For additional insight from Cadwalader partners, see “Best Practices for Hedge Fund Managers to Adopt in Anticipation of Enactment of FinCEN AML Rule Proposal” (Aug. 4, 2016).

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  • From Vol. 9 No.24 (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).

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  • From Vol. 9 No.8 (Feb. 25, 2016)

    Insurance Products Provide Tax-Efficient Means for Investors to Access Hedge Funds

    Certain life insurance products permit policyholders to invest the cash values of their policies in various investment products, including hedge funds. A key benefit of those policies is that such investments can grow on an income tax-deferred or tax-free basis. Katten Muchin Rosenman recently hosted a panel discussion on the use of private placement life insurance (PPLI) and private placement variable annuities (PPVA) as tax-efficient investment vehicles for high net worth individuals. The program, entitled “Tax-Efficient New Products for Sophisticated Investors, Family Offices and Alternative Asset Managers,” featured Katten partners as well as representatives from insurance brokers, investment firms and a Big Four accounting firm. This article examines the key takeaways from the discussion. For more on PPLI and PPVA, see “Insurance Dedicated Funds Offer Hedge Fund Exposure Plus Tax, Underwriting and Asset Protection Advantages for Investors” (Jul. 18, 2013).

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  • From Vol. 9 No.5 (Feb. 4, 2016)

    Going Private: Mechanical Considerations When Closing a Hedge Fund to Outside Investors (Part Three of Three)

    The decision by a hedge fund manager to transition to a family office or other private investment structure is only the first step in a potentially complicated process. A manager converting its fund faces issues involving notice to and redemption of outside investors; liquidation of significant portions of the fund’s portfolio; and payment of conversion costs. Throughout the process, managers must also ensure that investors are treated fairly. This final article in our three-part series details the mechanics of taking a hedge fund private, including redemption of outside investors and allocation of conversion costs. See “Dechert Global Alternative Funds Symposium Highlights Trends in Hedge Fund Expense Allocations, Fees, Redemptions and Gates” (May 21, 2015). The first article in the series examined the “going private” trend and explored the factors a hedge fund manager should consider when deciding whether to convert its hedge fund, as well as the options available once that decision has been made. The second article examined the operational considerations a hedge fund manager faces when converting its hedge fund, including ongoing regulatory obligations and staffing concerns.

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  • From Vol. 9 No.5 (Feb. 4, 2016)

    How Hedge Fund Managers Can Raise Capital and Expand Despite Increasing Regulation and Investor Demands

    In an environment where investors remain risk averse due, in part, to falling asset prices, hedge fund managers must carefully consider how to market their funds and grow their businesses. With increasing regulation in Europe and investor demands in the U.S., managers must find a way to woo investors and explore the various structures and options available for doing so, including joining an established platform, seeking a strategic investment or offering founder shares. In addition to other topics, speakers at the annual Sadis & Goldberg Alternative Investment Seminar discussed these challenges. This article summarizes the salient points made about marketing hedge funds in Europe and the U.S. and expanding a manager’s business, as well as the trend of converting to a family office or otherwise “going private.” For more from Sadis & Goldberg lawyers, see “Understanding the Benefits and Uses of Series LLCs for Hedge Fund Managers” (Nov. 15, 2012); and “Sullivan v. Harnisch and SEC Proposed Whistleblower Rules Bolster Internal Compliance Programs While Creating Catch-22 for Compliance Officers” (Mar. 18, 2011).

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  • From Vol. 9 No.4 (Jan. 28, 2016)

    Going Private: Operational Considerations When Closing a Hedge Fund to Outside Investors (Part Two of Three)

    Hedge fund managers weigh the decision to return outside capital and transition to a family office or other private investment structure in order to free themselves from investor burdens, gain performance advantages or reduce regulatory obligations. However, taking a hedge fund private may not be the panacea that it first appears, as ongoing regulatory obligations persist despite the lack of outside investors in the converted vehicle. See “Benefits and Burdens for Hedge Fund Managers in Establishing or Converting to a Family Office” (Jun. 6, 2014); and “Staff of SEC Division of Investment Management Clarifies the Scope of the Family Office Rule” (Feb. 9, 2012). This article, the second in a three-part series, examines the operational considerations a hedge fund manager faces when converting its hedge fund, including ongoing regulatory obligations and staffing concerns. The first article explored the “going private” trend and the factors a hedge fund manager should consider when deciding whether to convert a hedge fund, as well as the options available once that decision has been made. The third article will detail the mechanics for taking a hedge fund private, including redemption of outside investors and costs of conversion.

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  • From Vol. 9 No.3 (Jan. 21, 2016)

    Going Private: Factors to Consider When Closing a Hedge Fund to Outside Investors (Part One of Three)

    In late 2015, BlueCrest Capital Management announced that it would be returning outside capital and transitioning to a private investment partnership, managing only assets of its partners and employees. In doing so, BlueCrest has joined the growing ranks of hedge fund managers who, for a number of reasons, have decided to close their funds to outside investment and convert into a private structure. Historically, hedge fund managers weary of investor demands; increased regulatory and compliance requirements; and potential publicity issues have typically converted to family office structures. See “Legal Mechanics of Converting a Hedge Fund Manager to a Family Office” (Dec. 1, 2011). However, there are options beyond a family office for taking a hedge fund private. This article, the first in a three-part series, explores the “going private” trend and the factors a hedge fund manager should consider when deciding to convert a hedge fund, as well as the options available once that decision has been made. The second article will examine the operational considerations a hedge fund manager faces when converting its hedge fund, including ongoing regulatory obligations and staffing concerns. The third article will detail the mechanics for taking a hedge fund private, including redemption of outside investors and costs of conversion.

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  • From Vol. 7 No.22 (Jun. 6, 2014)

    Benefits and Burdens for Hedge Fund Managers in Establishing or Converting to a Family Office

    In this guest article, Pamela Snetro and Christopher Cavallaro, both financial advisers with Morgan Stanley Wealth Management, define a single family office and a multifamily office; identify potential benefits of a family office for hedge fund manager principals; list five potential concerns for hedge fund manager principals in establishing a family office; and highlight some of the reasons why hedge fund managers may consider converting to a family office format.  See “Legal Mechanics of Converting a Hedge Fund Manager to a Family Office,” The Hedge Fund Law Report, Vol. 4, No. 43 (Dec. 1, 2011).

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  • From Vol. 6 No.44 (Nov. 14, 2013)

    Barclays Survey Uncovers Family Office Perspectives on Hedge Fund Allocation Percentages, Strategies, Liquidity, Fees, Track Record and Investor Base

    Barclays recently asked 81 family offices about their preferences and practices in making hedge fund investments.  Its survey report analyzed what proportions of assets under management family offices are allocating to hedge funds; how those allocations are likely to change in the coming months; and how the practices of single-family offices differ from those of multi-family offices.  See “How Can Hedge Fund Managers Effectively Raise Capital from Single-Family Offices, Multi-Family Offices and High Net Worth Individuals,” The Hedge Fund Law Report, Vol. 6, No. 20 (May 16, 2013).  The report also explored family office preferences with regard to hedge fund investment strategies, liquidity terms, fees, track record and investor base.  This article summarizes the key findings of Barclays’ survey.  For another perspective on family office preferences, see “Why and How Do Family Offices and Foundations Invest in Hedge Funds?,” The Hedge Fund Law Report, Vol. 6, No. 1 (Jan. 3, 2013).

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  • From Vol. 6 No.23 (Jun. 6, 2013)

    Why and How Do Middle Eastern Sovereign Wealth Funds, Pension Funds and High Net Worth Individuals Invest in Private Funds?

    International investment manager Invesco Asset Management Limited recently published a report shedding light on the profiles of and investment preferences of various types of investors in the Middle East.  Specifically, the report described “investment” and “development” sovereign wealth funds and their preferences in regard to private equity investments, the emergence of sovereign pension funds, the investment preferences of ultra-high net worth individuals and regional capital flows.  The report provides valuable insight for private fund managers looking to understand and source investments from these investor segments in the Middle East.  This article summarizes key findings of Invesco’s report.  See also “Why and How Do Sovereign Wealth Funds Invest in Hedge Funds?,” The Hedge Fund Law Report, Vol. 6, No. 13 (Mar. 28, 2013).

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  • From Vol. 6 No.21 (May 23, 2013)

    JPMorgan Report Reveals Family Office Perspectives on Hedge Fund Manager Size, Investment Strategy, Fee Terms, Liquidity Terms and Transparency Levels

    In April 2013, JPMorgan’s Capital Introduction Group released its tenth annual survey of institutional investors, including family offices that have invested approximately $50.7 billion in hedge funds.  Survey respondents shared their views on various topics, including their preferences regarding hedge fund manager size, investment strategy, fee terms, liquidity terms and transparency levels.  This article summarizes the primary findings from this report.  For a discussion on how to market to family offices, see “How Can Hedge Fund Managers Effectively Raise Capital from Single-Family Offices, Multi-Family Offices and High Net Worth Individuals?,” The Hedge Fund Law Report, Vol. 6, No. 20 (May 16, 2013).

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  • From Vol. 6 No.20 (May 16, 2013)

    How Can Hedge Fund Managers Effectively Raise Capital from Single-Family Offices, Multi-Family Offices and High Net Worth Individuals?

    A law firm and an accounting firm hosted a seminar earlier this year on strategies and risks of hedge fund marketing focused on family offices and high net worth individuals.  The primary purpose of the seminar was to highlight workable, battle-tested strategies for raising capital from both sets of investors.  The secondary purpose of the seminar was to offer practical advice on navigating regulatory risks posed by hedge fund marketing generally.  This article discusses the salient points discussed during the seminar.  For related insight, see “Why and How Do Family Offices and Foundations Invest in Hedge Funds?,” The Hedge Fund Law Report, Vol. 6, No. 1 (Jan. 3, 2013).

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  • From Vol. 6 No.1 (Jan. 3, 2013)

    Why and How Do Family Offices and Foundations Invest in Hedge Funds?

    Family offices and foundations are an important source of investment capital for hedge funds and funds of funds (together, funds), particularly funds whose managers have a track record, well-developed infrastructure and the ability to demonstrate staying power.  See “Prime Broker Merlin Securities Develops Spectrum of Hedge Fund Investors; Event Hosted by Accounting Firm Marcum LLP Examines Marketing Implications of the Merlin Spectrum,” The Hedge Fund Law Report, Vol. 3, No. 39 (Oct. 8, 2010).  However, family offices and foundations have specific objectives in investing in hedge funds and specific concerns with their hedge fund investments.  Understanding these objectives and concerns is important to hedge fund managers because effective fund marketing should be a refined process rather than a blunt instrument.  Marketing that raises long-term dollars invariably caters to the specific circumstances of an investor rather than generally (or only) touting the achievements of the manager.  This is particularly true in marketing to family offices – entities that often have a range of objectives including but not limited to absolute returns.  See “New Rothstein Kass Study Explains the ‘Consultative’ Approach to Marketing to Single-Family Offices and the Importance of That Approach for Smaller Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 4, No. 20 (Jun. 17, 2011).  To help hedge fund managers enrich their understanding of the goals and concerns of family offices and foundations, this article describes the pertinent findings from a December 2012 survey of family offices and foundations conducted by Infovest21.  In particular, this article discusses the survey findings on topics including fund fees, allocation criteria, role of assets under management in manager selection, transparency and related topics.

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  • From Vol. 5 No.46 (Dec. 6, 2012)

    CFTC Grants Permanent No-Action Relief from CPO Registration for Family Offices and Temporary No-Action Relief for Operators of Funds of Funds

    The February 2012 CFTC rule amendments implementing provisions of the Dodd-Frank Act raised many questions concerning the obligations of fund of fund operators and family offices to register as commodity pool operators (CPOs) with the CFTC, particularly in light of the rescission of the Rule 4.13(a)(4) registration exemption relied upon by many fund of fund operators and family offices.  Recognizing that many fund of fund operators and family offices may need to register as CPOs with the CFTC by December 31, 2012, on November 29, 2012, the Division of Swap Intermediary Oversight (Division) of the CFTC issued two no-action letters, one granting temporary relief from CPO registration for operators of funds of funds and one granting permanent no-action relief for family offices.  However, the relief for fund of fund operators and family offices is not self-executing as potential claimants must make an electronic notice filing with the CFTC and satisfy other conditions to claim the relief.  This article outlines the relief granted by the Division in its no-action letters and the conditions that fund of fund operators and family offices must satisfy to claim such relief.  See also “Practising Law Institute Panel Discusses Sweeping Regulatory Changes for Hedge Fund Managers That Trade Swaps,” The Hedge Fund Law Report, Vol. 5, No. 45 (Nov. 29, 2012).

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  • From Vol. 5 No.31 (Aug. 9, 2012)

    Rothstein Kass Expands Family Office Group with the Addition of JDJ Resources Team

    On August 8, 2012, Rothstein Kass announced that it has expanded its family office group with the addition of a team of 16 professionals from Boston-based JDJ Resources Corporation (JDJ).  See “Legal Mechanics of Converting a Hedge Fund Manager to a Family Office,” The Hedge Fund of Law Report, Vol. 4, No. 43 (Dec. 1, 2011).

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  • From Vol. 5 No.6 (Feb. 9, 2012)

    Staff of SEC Division of Investment Management Clarifies the Scope of the Family Office Rule

    Family offices historically have been considered “investment advisers” as defined in the Investment Advisers Act of 1940 (Advisers Act) because they provide investment advice for compensation.  However, family offices historically have avoided registration by availing themselves of the private adviser exemption in Section 203(b)(3) of the Advisers Act or by seeking and obtaining exemptive relief from the SEC.  Under the Dodd-Frank Act, Congress eliminated the private adviser exemption and directed the SEC to adopt a definition of single family office that would be “consistent with previous exemptive policy” and recognize “the range of organizational, management, and employment structures and arrangements employed by family offices.”  On June 22, 2011, the SEC adopted Rule 202(a)(11)(G)-1 under the Advisers Act (Family Office Rule).  The Family Office Rule generally provides that family offices are excluded from the definition of investment adviser under the Advisers Act and defines family offices for purposes of the exclusion.  Under the Family Office Rule, an entity is a family office if it: (1) has only family clients; (2) is wholly owned and exclusively controlled by family members or family entities; and (3) does not hold itself out to the public as an investment adviser.  For a comprehensive discussion of the Family Office Rule, see “Developments in Family Office Regulation: Part Three,” The Hedge Fund Law Report, Vol. 4, No. 23 (Jul. 8, 2011).  So, as a matter of administrative law, Congress adopted a general principle with respect to family offices and the SEC put that principle into practice via rulemaking.  But while rules are more specific than laws, even rules often fail to capture the rich variety of factual circumstances to which they apply.  This is particularly the case with respect to family offices, a vast and heterogeneous group of entities engaged in a wide range of activities.  Accordingly, to offer industry participants more guidance on applying the Family Office Rule, the staff of the SEC’s Division of Investment Management recently published responses to five categories of questions relating to the scope of the Family Office Rule.  Specifically, the staff responded to questions on: (1) ownership and control of family offices; (2) key employees; (3) family members; (4) non-advisory services; and (5) the Family Office Rule’s grandfathering permission.  This article summarizes the staff responses.  These staff responses are important to two general categories of hedge fund managers: those that have or solicit investments from family offices, and those considering conversion to a family office format.  With respect to investments in hedge funds by family offices, see “Public Pension Funds and Endowments Increase Allocations to Hedge Funds, While Allocations from Family Offices Slide,” The Hedge Fund Law Report, Vol. 4, No. 36 (Oct. 13, 2011).  And with respect to conversion by hedge fund managers to a family office format, see “Legal Mechanics of Converting a Hedge Fund Manager to a Family Office,” The Hedge Fund Law Report, Vol. 4, No. 43 (Dec. 1, 2011).

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  • From Vol. 4 No.43 (Dec. 1, 2011)

    Legal Mechanics of Converting a Hedge Fund Manager to a Family Office

    Over the past two years, a number of prominent hedge fund managers have decided to return capital to outside investors and to restructure their businesses as family offices.  In August 2010, Stanley Druckenmiller announced he was winding down Duquesne Capital Management LLC to create a family office to oversee some of his $2.8 billion fortune.  In February 2011, Chris Shumway announced that he would return outside money invested in Shumway Capital Partners because of increased fund liquidity risks, and would focus on managing internal capital.  In March 2011, Carl Icahn announced he would return money to outside investors and convert Icahn Associates into a family office, citing a desire not to disappoint investors should another financial crisis erupt.  In July 2011, George Soros noted in an investor letter that he intended to return nearly $1 billion to outside investors and to convert Soros Fund Management into a family office, citing regulatory uncertainty as a key reason for his decision.  In August 2011, Edward Perlman announced that he planned to return nearly $470 million to investors and to convert Scottwood Capital Management into a family office, citing increased risks in the credit markets and regulatory uncertainty.  Many hedge fund managers cite the burdens associated with the heightened regulatory scrutiny facing hedge fund managers for their decision to restructure their businesses as family offices.  As a result of Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), many large fund managers that have historically been exempt from registration as investment advisers pursuant to the Investment Advisers Act of 1940 (Advisers Act) will need to register by March 30, 2012 unless an exemption or exclusion is available.  While the Dodd-Frank Act mandated adviser registration for many advisers, it also provided several narrowly-tailored exemptions and exclusions, including an exclusion for family offices whereby family offices are not only exempt from registration as investment advisers, but also are excluded from the definition of an investment adviser altogether, which means that they are not subject to the Advisers Act.  For a thorough description of the definition of a “family office” and related definitions, see “Developments in Family Office Regulation: Part Three,” The Hedge Fund Law Report, Vol. 4, No. 23 (Jul. 8, 2011).  This article starts by providing a detailed catalog of the primary benefits of converting a hedge fund manager to a family office and the primary downsides of such a conversion.  For managers who determine that the benefits outweigh the burdens, this article then provides a roadmap of the primary legal and practical mechanics involved in such a conversion.  Moving to a family office structure implicates considerations well beyond law and business – considerations relating to legacy, family, time and life goals.  Such considerations are beyond the purview of this or any other practical publication; rather, they are the province of deep thought, reflection, conversation and exploration.  But for managers who have undertaken the hard analysis and determined that the family office structure fits their goals, this article provides a useful starting place for identifying the relevant issues and taking the first steps.

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  • From Vol. 4 No.36 (Oct. 13, 2011)

    Public Pension Funds and Endowments Increase Allocations to Hedge Funds, While Allocations from Family Offices Slide

    On September 27, 2011, investment management software and services provider PerTrac hosted a webinar entitled “Institutional Asset Allocation: The Latest Trends From Pensions, Family Offices and Endowments.”  Lois Peltz, of information service provider Infovest21, delivered the presentation, which was the second of a two-part series.  The presentation laid out the results of Infovest21’s recent study (Study) of where and how family office, public pension fund and endowment assets are being allocated.  See “Developments in Family Office Regulation: Part Three,” The Hedge Fund Law Report, Vol. 4, No. 23 (Jul. 8, 2011).  The purpose of the event was to keep hedge fund managers, among others, up to date on investing trends and provide insight into how institutional investors are making investment decisions.  See “Implications for Hedge Funds of a Potential Paradigm Shift in Pension Fund Allocation Strategies,” The Hedge Fund Law Report, Vol. 3, No. 16 (Apr. 23, 2010).  This article summarizes the salient ideas and investment trends discussed in the course of the webinar.

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  • From Vol. 4 No.23 (Jul. 8, 2011)

    Developments in Family Office Regulation: Part Three

    On June 22, 2011, the Securities and Exchange Commission (“SEC” or the “Commission”) issued Release No. IA-3220  (the “Final Release”), adopting rule 202(a)(11)(G)-1 (the “Final Rule”) which defines “family offices” that would be excluded from the definition of “investment adviser” under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).  The SEC received and considered approximately 90 comment letters on the proposed rule (the “Proposed Rule”) issued on October 12, 2010 and, as a result, modified the Proposed Rule in certain respects, as detailed in this article.  While family offices generally meet the Advisers Act’s definition of “investment adviser,” in that they provide investment advice for compensation, they have historically avoided registration by availing themselves of the private adviser exemption found in section 203(b)(3) of the Advisers Act or by seeking and obtaining exemptive relief from the Commission.  Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama on July 21, 2010 (the “Dodd-Frank Act”), Congress eliminated the private adviser exemption and directed the Commission to adopt a definition of single family offices that would be “consistent with previous exemptive policy” and recognize “the range of organizational, management, and employment structures and arrangements employed by family offices.”  The Final Rule contains three general conditions: that (1) the family office has only family clients; (2) the family office is wholly owned and exclusively controlled by family members and/or family entities; and (3) the family office does not hold itself out to the public as an investment adviser.  Each of the foregoing is subject to definitions and as usual, the “devil is in the details.”  In a guest article, Michael G. Tannenbaum and Christina Zervoudakis, Founding Partner and Associate, respectively, at Tannenbaum Helpern Syracuse & Hirschtritt LLP, provide a thorough analysis of the Final Rule.  This is the final installation of a three-part series by Tannenbaum and Zervoudakis in The Hedge Fund Law Report addressing the regulation of family offices under the Advisers Act, by the Dodd-Frank Act and the Final Rule.  Part One of this series, entitled Developments in Family Office Regulation: Part One, presented the SEC’s position on the regulation of family offices prior to the Dodd-Frank Act as reflected by SEC exemptive orders, and Part Two, entitled 2010 Developments in Family Office Regulation: Part Two, discussed the Proposed Rule.

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  • From Vol. 4 No.20 (Jun. 17, 2011)

    New Rothstein Kass Study Explains the “Consultative” Approach to Marketing to Single-Family Offices and the Importance of That Approach for Smaller Hedge Fund Managers

    A recently published study by Rothstein Kass, Forbes Private Capital Group and Forbes Insights defined a single-family office; outlined the three attributes of single-family offices that make them attractive sources of capital for hedge funds, especially smaller hedge funds; emphasized the importance of the Executive Director; distinguished between two broad categories of single-family offices; highlighted the marketing mistakes frequently made by hedge fund managers in marketing to single-family offices; and outlined a viable and realistic strategy that hedge fund managers can use to market to single-family offices.  In general, with large investors increasingly allocating to large hedge fund managers, single-family offices are filling a capital void that is particularly important for start-up and smaller hedge fund managers.  See generally “Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part Two of Two),” The Hedge Fund Law Report, Vol. 4, No. 12 (Apr. 11, 2011).  This article summarizes the key findings of the study.

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  • From Vol. 4 No.12 (Apr. 11, 2011)

    Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part Two of Two)

    Variable insurance policies are an often utilized structure through which family offices and other high net worth investors invest in hedge funds and other private investment funds.  One of the primary advantages of investing in hedge funds and other private investment funds through variable insurance policies is the deferral of income taxes.  However, policy holders must first satisfy two important tests – the “diversification rules” and the “investor control” rules – in order for the policies to qualify for favorable income tax treatment.  This article is the second in a two-part series.  The first article in this series described the mechanics of investing in an insurance dedicated fund through variable insurance policies and offered a roadmap for satisfying the two tests to ensure the variable insurance policies maintain their tax-advantaged status.  See “Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part One of Two),” The Hedge Fund Law Report, Vol. 4, No. 11 (Apr. 1, 2011).  This article describes in detail a recent restructuring transaction in which the authors participated (the “Transaction”) and provides the key terms in the Transaction documents applicable to the diversification and investor control rules.

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  • From Vol. 4 No.11 (Apr. 1, 2011)

    Investments by Family Offices in Hedge Funds through Variable Insurance Policies: Tax-Advantaged Structures, Diversification and Investor Control Rules and Restructuring Strategies (Part One of Two)

    Variable insurance policies are an often utilized structure through which family offices and other high net worth investors invest in hedge funds and other private investment funds.  One of the primary advantages of investing in hedge funds and other private investment funds through variable insurance policies is the deferral of income taxes.  However, policy holders must first satisfy two important tests – the “diversification rules” and the “investor control” rules – in order for the policies to qualify for favorable income tax treatment.  This article is the first in a two-part series of guest articles in the HFLR by James Schulwolf and Peter Bilfield, both Partners at Shipman & Goodwin LLP, and Lisa Zana, a Senior Associate at Shipman.  This article describes the mechanics of investing in an insurance dedicated fund through variable insurance policies and offers a roadmap for satisfying the two tests to ensure the variable insurance policies maintain their tax-advantaged status.  The second article in this series will describe in detail a recent restructuring transaction in which the authors participated and provide the key terms in the transaction documents applicable to the diversification and investor control rules.

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  • From Vol. 3 No.42 (Oct. 29, 2010)

    2010 Developments in Family Office Regulation under Dodd Frank: Part Two

    This is part two of a three-part series that addresses the regulation of family offices under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), signed into law by President Obama on July 21, 2010.  The Dodd-Frank Act provides that family offices are to be exempt from the definition of “investment adviser” in the Advisers Act, but left to the Securities and Exchange Commission (“SEC” or the “Commission”) the definitional details, requiring only that the SEC’s implementation of the new rule be consistent with its historic position as reflected in its exemptive orders.  In proposing its definition of family office, the SEC focuses on single family offices which have assets in excess of $100 million.  There are about 2,500 to 3,000 such family offices in the U.S.  In the aggregate, these family offices manage more than $1.2 trillion in assets.  Part one of this series presented the current SEC position as reflected by the exemptive orders.  See “Developments in Family Office Regulation: Part One,” The Hedge Fund Law Report, Vol. 3, No. 38 (Oct. 1, 2010).  In this part two, Michael G. Tannenbaum and Christina Zervoudakis, Founding Partner and Associate, respectively, at Tannenbaum Helpern Syracuse & Hirschtritt LLP, discuss the proposed rules recently issued by the SEC.  Unless extended by the SEC, the comment period with regard to the proposals ends on November 18, 2010.  There will undoubtedly be comments for the SEC to consider and perhaps adopt.  The authors expect that part three of this series will deal with the state of affairs as made final after the comment period ends and the SEC issues its final rules.

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  • From Vol. 3 No.38 (Oct. 1, 2010)

    Developments in Family Office Regulation: Part One

    The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), signed into law on July 21, 2010, contains sweeping changes that will impact the U.S. regulatory landscape for years to come.  It is comprised of a number of separate titles – Title IV, the “Private Fund Investment Advisers Registration Act of 2010,” amends the U.S. Investment Advisers Act of 1940, as amended (the “Advisers Act”).  The Dodd-Frank Act requires, inter alia, that the U.S. Securities and Exchange Commission (“SEC”) issue rules relating to family offices.  Historically, family offices and their investment officers (and investment affiliates) have been granted exemptions from investment adviser registration under the Advisers Act on the basis that such persons (or entities) were not within the intent of Section 202(a)(11) of the Advisers Act, which contains the definition of “investment adviser.”  The relief came in the form of exemptive orders issued by the SEC.  The Dodd-Frank Act has codified this rationale by specifically excluding “family offices” from the definition of “investment adviser” under the Advisers Act and requiring the SEC to define the term “family office.”  Until the SEC issues its proposed rules, the exemptive orders and other relevant guidance reflect the current family office framework.  In a guest article, Michael G. Tannenbaum and Christina Zervoudakis, Founding Partner and Associate, respectively, at Tannenbaum Helpern Syracuse & Hirschtritt LLP, address those exemptive orders and other relevant guidance.  In a follow-up article in the HFLR, the authors will address the proposed rules shortly after they are issued by the SEC.

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  • From Vol. 1 No.17 (Aug. 1, 2008)

    SEC Provides Guidance Regarding Exemptions From Registration for Managers of “Family Offices”

    In two recent pronouncements, the SEC provided much-needed guidance on when a family office does not have to register as an investment adviser. In a recently-issued no-action letter, the SEC stated that it would not recommend enforcement action against a 3(c)(7) fund in which a fund managed by a family office invested, based on an investment in the family office fund by the non-family member executive director of the family office. In a roughly contemporaneous order granted to another family office, the SEC held that a family office did not have to register as an investment adviser where that family office provided services exclusively to a single family, was owned by the family and had a board of directors, the majority of which was comprised of family members.

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