The Hedge Fund Law Report

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

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By Topic: Sovereign Wealth Funds

  • From Vol. 9 No.23 (Jun. 9, 2016)

    Financing Facilities Offer Hedge Funds and Managers Greater Flexibility (Part Two of Three)

    Along with subscription credit facilities, other forms of fund financing are becoming more prevalent in the asset management industry. In the hedge fund space, fund-of-funds managers are employing financing structures, and portfolio acquisition facilities and general partner support facilities are growing in use. However, along with increasing popularity, these structures have also experienced a surge in complexity. In a recent interview with The Hedge Fund Law Report, Zac Barnett and Liz Soutter, partners at Mayer Brown, discussed subscription financing facilities and other debt facilities used by funds. In this second article in a three-part series, Barnett and Soutter discuss financing facilities employed by hedge funds and other private funds, their evolution in the current market and the costs of these facilities. The first article examined subscription facilities, including their prevalence in the asset management industry, investor response to these structures and primary considerations for managers anticipating entering into such a facility. The third article will outline market, structuring and operational considerations for managers when establishing financing facilities. For more on hedge fund financing, see “Barclays Predicts Increased Financing Costs for Hedge Funds Due to Regulatory Changes Affecting Prime Broker Financing” (Oct. 18, 2012).

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  • From Vol. 7 No.41 (Oct. 30, 2014)

    K&L Gates Partners Offer Practical Guidance for Hedge Fund Managers on Raising Capital in Australia, the Middle East and Asia

    Pension funds and sovereign wealth funds are important potential sources of capital for hedge fund managers.  Australia and Japan have about $1.7 trillion and $1.2 trillion in pension assets, respectively, while the sovereign wealth funds of Middle East nations hold another $1.8 trillion.  The Chinese market has huge potential as well.  In that regard, a recent presentation by international law firm K&L Gates LLP offered a comprehensive overview of the regulatory regimes and marketing requirements that affect fund managers seeking capital in Australia, the Middle East, Japan, China, Hong Kong and Singapore.  The program was moderated by K&L Gates partner Cary J. Meer.  The other speakers were her partners Natalie R. Boyd, Elizabeth A. Gray, Betsy-Ann Howe, Tsuguhito Omagari and Choo Lye Tan.  For a similar global regulatory roundup, see “KPMG Report Highlights Key Developments in Hedge Fund Regulation in the Americas, the Asia-Pacific Region, Europe, South Africa and the Middle East,” The Hedge Fund Law Report, Vol. 7, No. 33 (Sep. 4, 2014).  For a discussion of regional “passport” initiatives that may facilitate marketing of funds in Asia and Australia, see “How Can U.S. Hedge Fund Managers Use Passport and Mutual Recognition Initiatives to Market to Investors in Asia?,” The Hedge Fund Law Report, Vol. 7, No. 27 (Jul. 18, 2014).

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  • From Vol. 7 No.20 (May 23, 2014)

    United Arab Emirates Implements Licensing Regime for Firms Providing Investment Management Services

    In 2000, the United Arab Emirates (UAE) established the UAE Securities and Commodities Authority (ESCA) to supervise and monitor its financial markets.  In 2012, ESCA issued regulations governing the offering of investment funds in the UAE.  It recently issued a follow-up regulation governing the offering of investment management services in the UAE.  A recent event provided an overview of the new regulation, and insight into the interpretation and scope of its provisions.  The new regulation and interpretation of it are relevant to hedge fund managers with or targeting investors or investments in the UAE.  See also “Why and How Do Middle Eastern Sovereign Wealth Funds, Pension Funds and High Net Worth Individuals Invest in Private Funds?,” The Hedge Fund Law Report, Vol. 6, No. 23 (Jun. 6, 2013).

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  • From Vol. 6 No.23 (Jun. 6, 2013)

    Why and How Do Middle Eastern Sovereign Wealth Funds, Pension Funds and High Net Worth Individuals Invest in Private Funds?

    International investment manager Invesco Asset Management Limited recently published a report shedding light on the profiles of and investment preferences of various types of investors in the Middle East.  Specifically, the report described “investment” and “development” sovereign wealth funds and their preferences in regard to private equity investments, the emergence of sovereign pension funds, the investment preferences of ultra-high net worth individuals and regional capital flows.  The report provides valuable insight for private fund managers looking to understand and source investments from these investor segments in the Middle East.  This article summarizes key findings of Invesco’s report.  See also “Why and How Do Sovereign Wealth Funds Invest in Hedge Funds?,” The Hedge Fund Law Report, Vol. 6, No. 13 (Mar. 28, 2013).

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  • From Vol. 6 No.13 (Mar. 28, 2013)

    Why and How Do Sovereign Wealth Funds Invest in Hedge Funds?

    Investments from sovereign wealth funds (SWFs) can be attractive to hedge fund managers because such investments typically represent significant and sticky assets.  Understanding the character, investment processes, objectives and allocation preferences of SWFs can increase a manager’s likelihood of receiving an allocation from this investor type, thereby growing assets, fees and clout.  For insight on refining a marketing approach vis-à-vis another important hedge fund investor type, see “Rothstein Kass Study Explains the ‘Consultative’ Approach to Marketing to Single-Family Offices and the Importance of That Approach for Smaller Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 4, No. 20 (Jun. 17, 2011).  With these dynamics in mind, a recent report discusses trends in SWF growth and asset allocation preferences.  In particular, the report provides insight into SWF allocations to hedge funds and other alternative investment vehicles and the investment preferences of SWFs by economic sector.  This article summarizes the key findings of the report.  For a direct discussion of how hedge fund managers can hone their marketing efforts to attract SWF investments, see “Specific Steps that Hedge Fund Managers Can Take to Increase the Likelihood of an Investment from a Sovereign Wealth Fund,” The Hedge Fund Law Report, Vol. 2, No. 42 (Oct. 21, 2009).

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  • From Vol. 6 No.2 (Jan. 10, 2013)

    How Private Fund Managers Can Manage FCPA Risks When Investing in Emerging Markets

    Anti-corruption enforcement efforts have dramatically increased over the last few years.  Every day it seems there is a new headline about an investigation involving alleged violations of the FCPA.  Federal authorities have indicated that their FCPA enforcement efforts are increasingly focused on the financial services industry and, in particular, private fund managers that invest in emerging markets.  Given this heightened level of government scrutiny, it is important that private equity firms, hedge fund managers and other investors that conduct business in foreign markets understand the associated FCPA risks.  Such risks can arise in the context of raising funds overseas, working with joint venture partners and third party agents, and investing in companies that operate in countries known for corruption.  A potential misstep in these areas can result in a fund manager and its employees facing significant civil penalties and possible criminal prosecution or, at a minimum, having to respond to government subpoenas or requests for information in connection with an investigation by federal authorities, thus resulting in the unnecessary expenditure of time and money and the attraction of unwanted attention.  In a guest article, Justin V. Shur and Joel M. Melendez, partner and associate, respectively, at Molo Lamken LLP, consider some of the important and recurring FCPA risks that arise for investors in emerging markets, and offer practical guidance to help private fund managers and their employees avoid or minimize liability in this area.

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  • From Vol. 4 No.38 (Oct. 27, 2011)

    Pension Funds and Sovereign Wealth Funds Shift Towards Direct Allocations with a Distinct “Sweet Spot” for Hedge Fund Managers with Between $1.0 Billion and $5.0 Billion Under Management

    A June 2011 report summarized the results of a survey (Survey) of pension and sovereign wealth fund investors as well as hedge fund managers.  The Survey had two primary goals: (1) tracking the shift of these investors from funds of funds to direct allocation models; and (2) identifying the predominant characteristics of hedge fund managers who received these newfound direct allocations.  Overall, the Survey found that the shift to direct allocation among these investors has been dramatic.  The managers who have benefited most from this transformation are those with assets under management (AUM) of between $1.0 billion and $5.0 billion, a range the Report dubs the “sweet spot.”  This article details the key findings from the Survey and the key conclusions of the Report, focusing in particular on: the factors leading to direct investing; approaches to direct investing; the three primary vehicles used by pension funds and sovereign wealth funds for direct investing; the manager selection process; criteria used by pension funds and sovereign wealth funds to evaluate direct managers; and the pivotal role of consultants.

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  • From Vol. 4 No.4 (Feb. 3, 2011)

    The SEC’s Investigation of FCPA Violations and Sovereign Wealth Funds – Implications for Hedge Funds

    Although the Securities and Exchange Commission has said little publicly about its recent inquiry into potential Foreign Corrupt Practices Act (FCPA) violations involving the financial services industry and sovereign wealth funds, this sweep – which began earlier this month – has critical implications for U.S. private equity and hedge funds.  In a guest article, Michael J. Gilbert and Joshua W.B. Richards, Partner and Associate, respectively, at Dechert LLP, detail the background of the SEC’s investigation; outline the relevant provisions of the FCPA; provide examples of scenarios in which hedge funds may be exposed to FCPA risks; and offer guidance on how to mitigate those risks.

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  • From Vol. 2 No.42 (Oct. 21, 2009)

    Specific Steps that Hedge Fund Managers Can Take to Increase the Likelihood of an Investment from a Sovereign Wealth Fund

    Sovereign debt has been the historical repository of foreign exchange reserves.  In the old model, state enterprises would export goods (often commodities, such as oil) abroad, and the revenue from such sales would be used to purchase debt issued by other governments or their subdivisions, often the U.S. Treasury.  Alternatively, private firms would export goods produced with a state license, thereby generating tax revenue that the host country invested in sovereign debt.  With the bull run in commodities that began in the late 1990s, the foreign exchange coffers of various nations – especially the oil-rich – swelled, and the financial authorities in those nations took notice.  Rather than reflexively pouring growing foreign exchange reserves exclusively into sovereign debt, resource rich countries and other countries organized sovereign wealth funds (SWFs).  The goals of such funds included more concerted and disciplined management of reserves, and diversification among asset classes, industries and geographies.  For various countries, SWFs represented an effort to surmount the “resource curse” – the paradox in which development is often stunted in a nation rich in a single or a few natural resources.  Historically, SWFs have invested primarily in straightforward, liquid assets such as public equity and bonds, and allocated only a modest proportion of their net assets to hedge funds and other alternatives.  However, the credit crisis complicated the assumptions that undergirded that investment approach.  Among other things, the crisis demonstrated that investments in public equity – for example, in the stock of bank holding companies – could entail greater risk and exposure to more leveraged entities than investments in hedge funds.  Accordingly, SWFs are now looking to invest a greater proportion of their assets in hedge funds.  For example, in August of this year, the China Investment Corporation confirmed its plan to allocate approximately $6 billion to alternative investment strategies by the end of 2009.  For hedge funds managers still facing a difficult money-raising climate, the significant volume of assets in SWFs presents a compelling fund raising opportunity.  However, fund raising from SWFs is different in subtle but important ways from fund raising from the more traditional hedge fund investor base.  With the goal of assisting hedge fund managers in this unique but critical fund raising niche, this article explores: what SWFs are and how they are funded; the history and purpose of investments by SWFs in hedge funds; specific considerations for hedge fund managers when seeking to raise funds from SWFs; and potential concerns arising out of the receipt by hedge fund managers of SWF investments.

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  • From Vol. 1 No.8 (Apr. 22, 2008)

    Director of SEC Office of International Affairs Testifies Before Senate Committee on the Regulatory Framework for Sovereign Investments

    • Ethiopis Tafara, Director of SEC Office of International Affairs, testified before the Senate Committee on Banking, Housing and Urban Affairs regarding regulatory concerns raised by sovereign wealth funds and sovereign business ownership.
    • Specifically, Tafara discussed six regulatory concerns arising out of sovereign wealth fund investment and sovereign business ownership: market efficiency, transparency, enforcement, information disparity and corruption. In addition, he briefly described recent efforts to create best practices for sovereign funds.
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