The Hedge Fund Law Report

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

Articles By Topic

By Topic: Public Offerings

  • From Vol. 5 No.18 (May 3, 2012)

    SEC Charges Hedge Fund Manager with Fraud as Part of Its Ongoing Regulatory Scrutiny of Secondary Market Trading in Private Pre-IPO Company Shares

    Historically, it has been very difficult for investors to obtain allocations of shares of private companies that are anticipated to conduct an initial public offering of their shares.  To meet this need, a growing secondary market has developed to facilitate secondary market trading in the shares of such private companies, which are often purchased from an issuer’s employees and early investors.  Hedge fund managers have launched funds whose investment strategy is to invest in the shares of these popular private companies.  For the past year, the U.S. Securities and Exchange Commission (SEC) has intensified its scrutiny of this secondary market trading.  As part of that effort, on March 14, 2012, the SEC filed a civil enforcement action against a broker-dealer, an investment adviser and one of their principals who sponsored and managed hedge funds formed to engage in secondary market transactions in the shares of various popular startups, among them, Facebook, Inc., Twitter, Inc. and Zynga Inc.  This article highlights the factual allegations, causes of action and remedies sought by the SEC in its complaint and, in turn, identifies some of the pitfalls that hedge fund managers that employ this trading strategy should avoid.

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  • From Vol. 5 No.16 (Apr. 19, 2012)

    Mechanics of a Hedge Fund Manager IPO

    On April 12, 2012, Oaktree Capital Group (Oaktree), one of the world’s largest managers of credit-focused hedge funds and private equity funds, conducted a public offering of Class A units (Public Offering).  The Rule 424(b) prospectus, filed April 12, 2012 (Prospectus), indicated that all of the proceeds from the Public Offering will be directed towards acquiring interests in Oaktree’s business from its principals, employees and investors, including Oaktree’s senior management.  In other words, the Public Offering represents an opportunity for such persons to monetize their firm holdings.  Principals and employees may wish to monetize their holdings for various reasons.  For instance, some principals and employees may wish to diversify their financial holdings.  Others may view monetization of their interests as a step in the succession planning process whereby economic ownership of the firm can be transferred to others.  See “Key Considerations for Hedge Fund Managers in Developing a Succession Plan (Part Two of Two),” The Hedge Fund Law Report, Vol. 5, No. 8 (Feb. 23, 2012).  The Public Offering may portend a trend in public offerings by investment management firms, including a highly-anticipated public offering of approximately 10% of the interests in Carlyle Group LP that is expected to be consummated in the near future.  This article discusses the details of the Oaktree Public Offering and highlights some of the benefits and costs to a hedge fund manager going public in comparison to other monetization alternatives, such as pursuing a merger or acquisition of the firm.  See “Buying a Majority Interest in a Hedge Fund Manager: An Acquirer’s Primer on Key Structuring and Negotiating Issues,” The Hedge Fund Law Report, Vol. 4, No. 17 (May 20, 2011).

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