The Hedge Fund Law Report

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

Articles By Topic

By Topic: Permanent Capital

  • From Vol. 9 No.24 (Jun. 16, 2016)

    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). 

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  • From Vol. 9 No.23 (Jun. 9, 2016)

    Practical Issues Faced by U.S.-Based Managers When Establishing U.K.-Listed Funds (Part One of Two)

    U.K.-listed closed-end funds have become an increasingly popular source of permanent capital for the global asset management industry. Used for all manner of investment strategies, these vehicles are ideally suited for illiquid strategies such as private equity, and have also been used as feeder funds into single-manager hedge funds. Over the past several years, U.S.-based managers have been coming to London for the relatively greater regulatory flexibility offered by the U.K.-listed funds markets as compared to U.S. public securities markets. 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 establishing a fund listed in the U.K. This first article explores 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. The second article will consider the impact of certain U.S. securities laws that would apply to the U.K. listing of the shares of a closed-end fund offered by a U.S.-based manager. See also “Regulatory and Practitioner Perspectives on Alternative Mutual Fund Compliance Risk” (Feb. 26, 2015).

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  • From Vol. 8 No.43 (Nov. 5, 2015)

    How Hedge Fund Managers and Others May Address Logistical Considerations When Acquiring or Consolidating BDCs

    Business development companies (BDCs) are investment companies registered under the Investment Company Act of 1940 that invest primarily in the debt and equity securities of private U.S. operating companies.  On October 28, a panel of attorneys discussed nascent consolidation in the BDC industry and summarized the legal and practical considerations in a BDC consolidation.  The program, “Riding the BDC Consolidation Wave,” featured Dechert partners William J. Bielefeld, Thomas J. Friedmann, David J. Harris, William J. Tuttle, Jeffrey S. Sion and Kenneth E. Young.  Although the program focused on consolidation of BDCs, many of the legal requirements for a BDC consolidation may also apply to hedge fund managers that wish to consider BDCs as permanent capital vehicles or as a way to diversify revenue streams.  This article summarizes the key takeaways from the program.  For more from Dechert on BDCs, see “Dechert Global Alternative Funds Symposium Evaluates Liquid Alternative Funds and Fund Governance Trends,” The Hedge Fund Law Report, Vol. 8, No. 25 (Jun. 25, 2015).

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  • From Vol. 8 No.14 (Apr. 9, 2015)

    Permanent Capital Structures Offer Managers Funding Stability and Access to Capital While Granting Investors Liquidity and Access to Managers

    Client redemptions and the need to manage their funds’ underlying portfolios of investments to allow for investor liquidity are issues that hedge fund managers routinely face, especially since the market events of 2008 and 2009.  Consequently, managers may find their abilities to pursue their investment strategies constrained by the need to keep portions of their funds’ assets in cash or may have to reduce otherwise attractive positions held by their funds in order to fund client redemptions.  In an effort to counteract such issues, managers are increasingly exploring permanent capital structures – vehicles that would provide a stable source of assets to the manager.  In a recent interview with The Hedge Fund Law Report, Jay Gould and Christopher Zochowski, partners at Winston & Strawn LLP and members of its Permanent Capital Solutions Group, shared detailed insight into types of permanent capital structures used in the hedge fund and private equity industries; the benefits of such structures; the circumstances under which certain permanent capital structures may be employed by managers; potential investor concerns with such structures; and terms and features of certain permanent capital structures.  For more on permanent capital structures, see “Ares Management IPO Raises Permanent Capital and Creates Liquidity for Founders’ Interests,” The Hedge Fund Law Report, Vol. 7, No. 14 (Apr. 11, 2014); and “Prospectus for Suspended Ellington Financial IPO Details Mechanics of a Hedge Fund Permanent Capital Vehicle,” The Hedge Fund Law Report, Vol. 2, No. 50 (Dec. 17, 2009).

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  • From Vol. 7 No.14 (Apr. 11, 2014)

    Ares Management IPO Raises Permanent Capital and Creates Liquidity for Founders’ Interests

    Alternative investment manager Ares Management is in the process of creating and offering a publicly-traded limited partnership to hold its asset management business.  Its recently filed registration statement on form S-1 indicates that the offering will be for $100 million of limited partnership interests in Ares Management, L.P.  Ares is following in the footsteps of other alternative asset managers, such as Oaktree Capital, which have sought to monetize the value of their management businesses to provide capital for expansion, to assist founders and employees in cashing out and to facilitate succession.  See “Mechanics of a Hedge Fund Manager IPO,” The Hedge Fund Law Report, Vol. 5, No. 16 (Apr. 19, 2012).  See also “Succession Planning Series: Selling a Hedge Fund Founder’s Interest to an Outside Investor (Part Two of Two),” The Hedge Fund Law Report, Vol. 7, No. 2 (Jan. 16, 2014).  Other fund managers have gone to the public markets as an alternate source of capital for private equity-type investments (see “Anatomy of a Blank Check IPO by a Hedge Fund Manager,” The Hedge Fund Law Report, Vol. 7, No. 13 (Apr. 4, 2014)) and to fund “permanent capital” vehicles for specific purposes, such as the acquisition of mortgage-backed securities (see “Prospectus for Suspended Ellington Financial IPO Details Mechanics of a Hedge Fund Permanent Capital Vehicle,” The Hedge Fund Law Report, Vol. 2, No. 50 (Dec. 17, 2009)).

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  • From Vol. 2 No.50 (Dec. 17, 2009)

    Prospectus for Suspended Ellington Financial IPO Details Mechanics of a Hedge Fund Permanent Capital Vehicle

    Only days after Ellington Financial LLC (Ellington), run by Michael Vranos’ hedge-fund firm, Ellington Management Group, LLC (Manager), filed a prospectus with the SEC announcing a planned initial public offering (IPO) to raise cash in order to purchase mortgage-backed bonds, Ellington suspended the IPO due to “market conditions.”  The IPO was premised on the idea that investors would be willing to purchase Ellington shares at a premium, an average of $26 per share, 6.1 percent more than the value of its net assets, or 1.06 times Ellington’s shareholder equity, so that Ellington could invest in potentially underrated home loans in the recovering United States housing market.  While the IPO has ceased, its mechanics and the risk factors discussed in the Ellington prospectus remain particularly interesting for hedge fund managers contemplating a similar issuance of shares to obtain so-called “permanent capital” for the purpose of investing in designated assets.  This article summarizes the material terms and provisions of the Ellington prospectus and the suspended IPO.

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