The Hedge Fund Law Report

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

Articles By Topic

By Topic: Fund Closings

  • 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.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.21 (Jun. 2, 2014)

    When and How Can Hedge Fund Managers Close Hedge Funds in a Way that Preserves Opportunity, Reputation and Investor Relationships?  (Part Two of Two)

    This is the second article in our two-part series on best practices for closing hedge funds.  The first article in this series laid out an eight-step framework for executing fund closures, and this article discusses many of the difficult issues that managers encounter when working through that eight-step framework.  In particular, this article analyzes the following themes or issues that regularly come up in connection with closing hedge funds: what happens to the rights and obligations in side letters; holdbacks, reserves and clawbacks; three strategies for handling side pockets and illiquid assets; management and performance fees; litigation, contingent liabilities and indemnification; how to handle an account managed in parallel with a closed fund; whether to include or exclude a closed fund in performance information and advertising; investor relations best practices; and the three most common mistakes hedge fund managers make in closing funds.

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  • From Vol. 7 No.18 (May 8, 2014)

    How to Close a Hedge Fund in Eight Steps (Part One of Two)

    In concept, hedge funds are “continuously offered” and, unlike their private equity cousins, have no built-in end date.  In practice, however, hedge funds do not last forever.  For various reasons – this article catalogues nine of them – hedge fund managers may wish to close their funds, or may close their funds without wishing to.  More often than not, a hedge fund manager that closes a fund remains in the investment management business, and continues to interact with the same employees, investors and service providers – even if that interaction occurs under a different structure.  Closing a fund is a complex process involving hard legal and business issues, often with an overlay of meaningful personal dynamics.  This article – the first in a two-part series – aims to add some structure to what can be a fraught and unruly process by presenting an eight-step framework for hedge fund closures.  The second article in this series will highlight a number of challenges that managers typically encounter in the course of those eight steps, and suggest best practices for negotiating the challenges.  It should be emphasized that this series is about winding down the business and investment affairs of a hedge fund.  In industry parlance, “closing” also refers to a situation in which a hedge fund is not accepting new investors or investments.  That latter type of “closing” is not the subject of this series, but was the subject of prior articles in the HFLR.  See “Legal and Investment Considerations in Connection with Closing Hedge Funds to New Investors or Investments,” The Hedge Fund Law Report, Vol. 3, No. 37 (Sep. 24, 2010); “Primary Legal and Business Considerations in Structuring Hedge Fund Capacity Rights,” The Hedge Fund Law Report, Vol. 3, No. 22 (Jun. 3, 2010).

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