The Hedge Fund Law Report

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

Recent Issue Headlines

Vol. 3, No. 14 (Apr. 9, 2010) Print IssuePrint This Issue

  • Lessons for Hedge Fund Managers on Liquidity, Allocations, Marketing and More from Yale’s 2009 Endowment Report

    Endowments were among the first institutional investors in hedge funds, and they remain among the most committed and sophisticated.  According to data provider Preqin, endowments account for approximately 14 percent of institutional investor assets in hedge funds, the third largest category after funds of funds and public pension funds.  The Yale University Endowment in particular, under the stewardship of Chief Investment Officer David Swensen, has been a leader among endowments with respect to hedge fund investing.  Yale made its first investment in hedge funds in July 1990, starting with a 15 percent target allocation to what it calls “absolute return” strategies, and in the last 10 years has generated average annual returns of 11.4 percent from hedge funds.  Many endowments have followed Yale’s lead into hedge funds, such that the average endowment’s allocation to hedge funds is now 22.5 percent of total assets; Yale’s target hedge fund allocation currently is 15 percent, down from 21 percent in fiscal 2008, though its current actual allocation is 24.3 percent.  In light of Yale’s pioneering role in hedge fund investing, its 2009 Endowment Report merits special attention from hedge fund managers, other endowments and other institutional investors.  For hedge fund managers looking to hone their marketing “pitch” to endowments, the Report offers unique insight into the thinking of a leading endowment on a variety of relevant topics.  For other endowments and other institutional investors, the Report describes a variety of best practices and approaches based on long experience.  See “Are University Endowments Likely to Insource Investment Management Functions Currently Outsourced to Hedge Fund Managers?,” The Hedge Fund Law Report, Vol. 2, No. 37 (Sep. 17, 2009).  Of particular note, the Report discusses the three-part framework used by Yale to understand and approach liquidity.  Following the frequent use of liquidity restriction measures during the credit crisis, liquidity has become a paramount concern among institutional investors.  But there’s more to liquidity than merely the right to get your money back.  The liquidity framework described in the Yale Report is subtle and, to a degree, counterintuitive; and it’s a framework of which hedge fund managers need to be aware when marketing to endowments.  To that end, this article describes that framework in detail and, more importantly, discusses 11 ways in which hedge fund managers may use an understanding of that framework to enhance the liquidity they offer to endowments.  This article also details other matters discussed in the Report that are relevant to hedge funds, including: sources of endowment funds; uses of endowment funds; asset allocation by Yale and other endowments; Yale’s investment goals generally; Yale’s investment goals specifically with respect to hedge fund allocations; Yale’s views with respect to investments in private funds affiliated with banks; its use of benchmarks for measuring the performance of absolute return strategies; and its focus on green investing and sustainable development.

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  • Cayman Islands Court of Appeal Refuses to Allow an Investor in Hedge Fund Camulos Partners to Commence a Winding-Up Proceeding to Pursue its Unpaid Redemption Demand Because the Investor has Alternative Available Remedies

    The Cayman Islands Court of Appeal recently rejected a bid by a hedge fund investor to pressure the fund into paying out a redemption demand by forcing the fund into liquidation.  It rejected the investor’s liquidation petition as an abuse of process.  Kathrein & Co. (Investor) was an investor in hedge fund Camulos Partners Offshore Limited (Fund), which was organized under the laws of the Cayman Islands.  In July 2008, the Investor sought to redeem its entire interest in the Fund.  The redemption request had an effective date of September 30, 2008.  In early September, the Fund announced a plan of reorganization and subsequently suspended all redemptions in the Fund.  The Investor then commenced an action against the Fund seeking a declaration of its rights to receive the full value of its redemption proceeds.  The Fund opposed that action.  When the Investor learned that the Fund was going to begin distributing cash to all other investors in the Fund (but not to the Investor), the Investor filed a winding-up petition to force liquidation of the Fund.  On appeal, the Court of Appeal determined that the Investor was not entitled to petition for liquidation of the Fund.  It ruled that, because the Investor had other viable alternatives to seek payment of its claim for its redemption proceeds, the petition for liquidation was an impermissible abuse of process.  Consequently, the Court dismissed the liquidation petition.  We summarize the procedural jousting and the reasoning behind the Court’s decision.

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  • EU Competition and Hedge Fund Lawyer Davina Garrod Joins Bingham McCutchen’s London Office

    As part of its strategic focus on expanding its U.S. and Asian hedge fund and antitrust capabilities to Europe, Bingham McCutchen LLP announced on April 8, 2010 that it has added Davina Garrod to its London office as a partner in the Antitrust and Trade Regulation Practice Group.

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  • Deutsche Bank Announces New Hires: Kline now Heads Hedge Fund Consulting and Cassidy to Head Prime Brokerage and Derivatives Clearing for Global Rates

    On April 7, 2010, Deutsche Bank announced two new hires to its Global Prime Finance and Global Rates Divisions.  Doug Kline has joined the Global Prime Finance business within the Global Markets division as a Managing Director and Head of Hedge Fund Consulting.  In May 2010, Joe Cassidy will be joining Deutsche Bank as Head of Prime Brokerage and Derivatives Clearing for Global Rates.

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  • Kathleen Griffin Named SEC’s First Chief Compliance Officer

    On April 1, 2010, the Securities and Exchange Commission announced that Kathleen M. Griffin has been named the agency’s first Chief Compliance Officer – the latest in a series of measures undertaken to strengthen the SEC’s internal compliance program.

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