The Hedge Fund Law Report

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

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By Topic: Depositories

  • From Vol. 9 No.18 (May 5, 2016)

    What Hedge Fund Managers Need to Know About AIFMD’s Depositary Requirement (Part Two of Two)

    Among the changes imposed on hedge fund managers by the Alternative Investment Fund Managers Directive (AIFMD) is the European requirement to appoint a fund depositary. Hedge fund managers may be subject to different depositary regimes depending on their and their funds’ domiciles, and appointing a depositary requires attention to numerous practical and operational details. In a recent interview with The Hedge Fund Law Report, Bill Prew, founder and CEO of INDOS Financial Limited, discussed AIFMD’s impact on the hedge fund industry since its introduction in July 2014. This article, the second in a two-part series, sets forth Prew’s thoughts about the practical implications of the new depositary requirements, as well as other industry trends and issues for hedge fund managers. In the first installment, Prew discussed the effect of AIFMD on hedge fund managers and their ability to market funds across Europe. For more on depositary requirements under AIFMD, see our two-part series “Application of the AIFMD to Non-E.U. Alternative Investment Fund Managers”: Part One (May 23, 2013); and Part Two (Jun. 13, 2013); as well as “AIFM Directive: Loosening the Regulatory Noose” (Jun. 17, 2009).

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  • From Vol. 9 No.17 (Apr. 28, 2016)

    AIFMD Has Increased Compliance Burden on Hedge Fund Managers (Part One of Two)

    The Alternative Investment Fund Managers Directive (AIFMD) significantly changed the European legal and regulatory landscape for hedge fund managers, affecting their ability to market funds in Europe, increasing their compliance burden and imposing new requirements on funds. In a recent interview with The Hedge Fund Law Report, Bill Prew, founder and CEO of INDOS Financial Limited, discussed AIFMD’s practical impact on the hedge fund industry since its introduction in July 2014. This article, the first in a two-part series, sets forth Prew’s thoughts about the effect of AIFMD on hedge fund managers and the ability of managers to market their funds across Europe. In the second installment, Prew will discuss the practical implications of the depositary requirements imposed by AIFMD on hedge fund managers, as well as other industry trends and issues. For additional insight from Prew, see our series on Advise Technologies’ program for non-E.U. hedge fund managers under E.U. private placement regimes: “Guidance for Registering” (Dec. 3, 2015); and “Roadmap for Reporting” (Dec. 10, 2015). For more on AIFMD, see “AIFMD Is Easier for Non-E.U. Hedge Fund Managers Than Commonly Anticipated” (Oct. 22, 2015).

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  • From Vol. 8 No.38 (Oct. 1, 2015)

    European Regulator Issues Guidance to Market Participants on Penalties for Settlement Failures

    The European Securities and Markets Authority (ESMA) recently published a Final Report (Report) containing technical advice under the E.U. regulation on improving securities settlement in the European Union and on central securities depositories (CSD Regulation).  The Report addresses two areas relating to delegated acts required under the CSD Regulation: penalties for settlement failures and the importance of a CSD.  This article provides the background to the Report and examines ESMA’s advice on penalties for settlement failures.  The advice is important for hedge fund managers and other participants in the E.U. securities market because penalties are meant to deter settlement failures and encourage prompt resolution of failures by market participants, thereby improving settlement efficiency within the E.U.  Implementing a cash penalty system will also affect the bottom line for market participants, stemming from the implementation, operation and monitoring of the system by CSDs and regulators, as well as payment of the penalties.  For more on CSDs, see “EMIR Offers Three Models of Asset Segregation to Fund Managers That Trade OTC Derivatives,” The Hedge Fund Law Report, Vol. 8, No. 15 (Apr. 16, 2015).

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  • From Vol. 4 No.7 (Feb. 25, 2011)

    Irish High Court Rules that Hedge Fund Investor Is Entitled to Seek a Report of Fund’s Operations Directly from Fund’s Depository Bank When the Fund Fails to Make That Report Available Per Applicable EC Disclosure Rules

    Plaintiffs in this action, Aforge Finance SAS and Aforge Gestion SAS (together, Aforge) were investors in non-party hedge fund Thema International Fund PLC (Thema or Fund).  Defendant HSBC Institutional Trust Services (Ireland) Limited (HSBC or Depository) served as the Fund’s depository.  The Fund apparently had a significant portion of its assets invested with Bernard Madoff.  After Madoff’s fraud was revealed, the Fund collapsed, losing substantially all of its assets.  HSBC, as one of the Fund’s depositories, was responsible for holding the Fund’s investments.  This action arose out of Aforge’s efforts to seek information about the Fund and its assets from HSBC.  Aforge claimed that it was entitled to obtain Fund information directly from HSBC.  A substantial part of Aforge’s argument rested on the theory that HSBC owed a fiduciary duty, and a corresponding duty to account, directly to the Fund’s investors.  Because it was organized in Ireland, the Fund was subject to the European Union’s Undertakings for Collective Investment in Transferable Securities Directive and the corresponding Irish implementing regulations (together, UCITS), which govern, among other things, disclosure by investment funds organized in the European Union.  UCITS requires a depository to make an annual report to the fund for which it holds assets.  In turn, the fund is required to make periodic financial disclosure to its investors, including the information contained in the depository’s report.  The Irish High Court, relying on the disclosure scheme mandated by UCITS, did not rule on whether a fiduciary relationship existed between HSBC and Aforge.  Instead, it determined that, because Thema failed to make the disclosures mandated by UCITS and, specifically, failed to provide HSBC’s requisite annual report, Aforge was entitled to seek that report directly from HSBC.  The Irish High Court refused to grant Aforge the right to seek any information beyond the information that HSBC was required to provide pursuant to UCITS.  We summarize the Court’s decision and its reasoning.

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