The Hedge Fund Law Report

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

Articles By Topic

By Topic: Currencies

  • From Vol. 5 No.31 (Aug. 9, 2012)

    Structuring, Regulatory and Tax Guidance for Asia-Based Hedge Fund Managers Seeking to Raise Capital from U.S. Investors (Part One of Two)

    U.S. hedge fund investors are continuously seeking attractive investment opportunities and are increasingly expanding their search to incorporate Asia-based hedge fund managers.  At the same time, Asia-based hedge fund managers are navigating the challenging capital raising environment by reaching beyond their borders to attract U.S. investors.  However, Asia-based fund managers seeking to attract capital from U.S. investors must contend with a plethora of U.S. and foreign regulations in raising and managing such capital.  As such, Asia-based fund managers must work closely with U.S., Cayman and local counsel to develop a cohesive and carefully thought out fund and management structure, intertwining the various regulatory requirements of the applicable jurisdictions, all of which must be adhered to by the fund manager, any sub-advisers and their respective affiliates.  This is the first in a two-part series of guest articles designed to help Asia-based fund managers navigate the challenges of structuring and operating funds to appeal to U.S. fund investors.  The authors of this article series are: Peter Bilfield, a partner at Shipman & Goodwin LLP; Todd Doyle, senior tax associate at Shipman & Goodwin LLP; Michael Padarin, a partner at Walkers; and Lu Yueh Leong, a partner at Rajah & Tann LLP.  This first article describes the preferred Cayman hedge fund structures utilized by Asia-based fund managers, the management entity structures, Cayman Islands regulations of hedge funds and their managers and regulatory considerations for Singapore-based hedge fund managers.  The second article in the series will detail a number of the key U.S. tax, regulatory and other considerations that Asia-based fund managers should consider when soliciting U.S. taxable and U.S. tax-exempt investors.

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  • From Vol. 4 No.15 (May 6, 2011)

    PerTrac’s Eighth Annual “Sizing the Hedge Fund Universe” Study Identifies Trends Regarding AUM, Domicile, Currency and Performance Information Reporting for Single Manager Hedge Funds, Funds of Funds and Commodity Trading Advisors

    In its recently released study entitled “Sizing the 2010 Hedge Fund Universe” (Study), software and services provider PerTrac analyzed information from ten leading global hedge fund databases to identify trends with respect to assets under management, domicile, currency and performance information reporting by single manager hedge funds, funds of funds and commodity trading advisors.  The Study generally found that the overall number of entities that existed and reported performance information to databases increased during 2010 over 2009, but that the growth was unevenly distributed among the types of entities under analysis.  Moreover, the Study highlighted the significant number of small managers, and thus, from a regulatory perspective, implicitly emphasized the increased importance of state-level hedge fund adviser registration.  See “Connecticut Welcomes You! Federal Financial Regulatory Reform Restores Connecticut’s Authority over Hedge Fund Advisers,” The Hedge Fund Law Report, Vol. 3, No. 30 (Jul. 30, 2010).  This article summarizes the key findings of the Study.  Also, where relevant, this article includes links to other articles in The Hedge Fund Law Report offering concrete guidance to managers on the legal and regulatory implications of the business trends identified by the Study.  See, e.g., “Who Should Newly Registered Hedge Fund Managers Designate as the Chief Compliance Officer and How Much Are Chief Compliance Officers Paid?,” The Hedge Fund Law Report, Vol. 4, No. 7 (Feb. 25, 2011).

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  • From Vol. 3 No.1 (Jan. 6, 2010)

    Local Currency Hedge Funds Expand Marketing and Investment Opportunities, but Involve Currency Hedging and Other Challenges

    Traditionally, hedge funds have scoured the globe for investments.  To an increasing degree, hedge funds are scouring the globe for investors.  There are various macroeconomic reasons for this trend, including but not limited to: political and economic progress in developing countries generally and the so-called BRIC (Brazil, Russia, India, China) countries specifically; high savings rates, especially in China and Japan; the recent credit crisis, and the resulting loss of wealth in the U.S. and Eurozone countries; record deficit spending in the U.S., and resulting concerns about inflation and interest rates; etc.  At a more practical level, 2008 and 2009 witnessed significant outflows from hedge funds, and managers have been looking for new capital wherever they can find it – even if that new capital comes from places other than the usual suspect jurisdictions.  As more hedge fund capital comes from more places, hedge fund managers have been exploring and, in some cases, launching funds denominated in local currencies.  Local currency hedge funds have two chief advantages over funds denominated in U.S. Dollars or another “reserve” currency: they facilitate marketing to a wider range of institutions and individuals, and they enable investments in assets that otherwise would be inaccessible or difficult to access.  In addition, local currency funds enable managers to avoid, in some cases, certain of the administrative and legal brain damage involved in other approaches to managing currency issues.  At the same time, local currency funds implicate certain unique risks.  This article describes the four primary ways in which hedge fund managers approach multicurrency issues, one of which involves the use of local currency funds, and details the risks and benefits of each.  In particular, this article drills down on the practical and legal challenges involved in hedging currency risk, and discusses the special case of China’s new limited partnership law.

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