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    Jan. 16, 2025

What Hedge Fund Managers May Expect From the SEC in 2025

As we begin a new year, hedge fund managers may wonder what the SEC will have in store for them in 2025 – especially with a new administration and a new SEC Chair. In addition, the repercussions from key developments in 2024, such as court decisions challenging the SEC’s authority to issue certain rules, may still be reverberating in 2025. To that end, the Hedge Fund Law Report spoke with Genna N. Garver, partner at Troutman Pepper Locke LLP, about the ongoing status of SEC rulemaking efforts that occurred in 2024 and related legal challenges; what hedge fund managers may expect from the SEC in 2025; and how CCOs can prepare for the new year. This article presents Garver’s thoughts on those topics. For additional commentary from Garver, see “SEC Risk Alert Announces Exams of Firms’ Preparations for T+1 Settlement” (May 23, 2024).

Building the Future: Aligning Talent and Technology in Investment Firms

In the investment management space, the fierce battle for talent impacts everyone from private equity to hedge funds. Emerging technologies are quickly splitting up institutions between those that are profitable and efficient and those that are not. For example, Deloitte’s 2025 investment management outlook report found that the new technologies available to investment management firms may lead to stark contrasts in results between the firms that deploy them quickly and effectively, compared to those that lag or act less boldly. Technology will be a key deciding factor for top talent zeroing in on careers at organizations that offer the latest advancements. So how can investment firms prioritize technologies alongside talent? This guest article by Arcesium managing director David Nable explains why private fund managers must strategically integrate advanced technologies and human talent, as well as leverage innovative pass-through expense structures to remain competitive and drive growth. See “AIMA Study Finds Strong Demand for Hedge Fund Personnel” (Apr. 7, 2022).

SEC and CFTC Whistleblower Reports Reflect Continuing Vitality of Programs

The SEC’s Office of the Whistleblower and the CFTC’s Whistleblower Office, which sit within their respective Enforcement Divisions, were established in 2011 pursuant to the Dodd-Frank Act. The offices released their annual reports for the fiscal year ending September 30, 2024. The offices continue to receive thousands of tips and make substantial awards, including a $98‑million award by the SEC to two whistleblowers – the year’s largest award by far. To avoid revealing the identity of whistleblowers, the reports do not provide award percentages, respondent names or other significant details concerning the matters that led to the awards. This article discusses the key takeaways from the reports. See “SEC and CFTC Received Record Number of Whistleblower Tips and Made a Record Award in 2022” (Feb. 2, 2023).

Investment Adviser Avoids Civil Penalty Due to Self-Reporting, Remediation and Cooperation: True, False or Other?

On September 23, 2024, the SEC announced that it had settled charges against an investment adviser, Atom Investors LP (Atom), for failing to maintain and preserve off-channel communications in breach of its recordkeeping obligations (Order). The violations in the Order are largely unexceptional. Instead, the most notable feature of the Order is that the SEC’s Division of Enforcement (Enforcement) decided not to issue a civil penalty against Atom due to its self-reporting, cooperation and remedial measures. In the accompanying press release, then‑Director of Enforcement Gurbir S. Grewal touted that the resolution “shows that the full benefits of cooperation are available in recordkeeping matters.” He went on to emphasize that Atom’s “self-reporting and prompt remedial efforts weighed heavily in [Enforcement’s] decision to recommend that the Commission not impose a penalty . . . [and that t]his resolution should serve as a model for other investment advisors that are not currently in compliance with federal recordkeeping requirements.” At first glance, the Order may seem like it provides hope to beleaguered investment advisers searching for the right balance of self-reporting, cooperation and remediation to manage their SEC enforcement risks. In reality, however, the facts in the Order are sufficiently nuanced and bespoke to the matter at hand as to render the outcome more underwhelming than touted by the SEC. This article summarizes the key features of the Order and provides insights from experts interviewed by the Hedge Fund Law Report. See “SEC Enforcement Director Grewal Emphasizes Benefits of Cooperation” (Sep. 12, 2024).

SEC Imposes $21.5 Million in Penalties on Advisers for Misleading ESG Claims

The SEC continues to use its traditional enforcement mechanisms to address alleged misrepresentations about investment advisers’ claims regarding incorporation of environmental, social and governance (ESG) factors in their investment processes. The agency settled enforcement proceedings against Invesco Advisers, Inc. (Invesco) and WisdomTree Asset Management, Inc. (WisdomTree), both of which allegedly made material misrepresentations regarding their ESG practices. Invesco allegedly overstated the extent of its ESG integration and made inaccurate statements regarding its methodologies. WisdomTree made broad statements regarding exclusionary screening without disclosing the limitations of the datasets it used for such screening and made investments inconsistent with its screening criteria. Additionally, both allegedly failed to adopt appropriate policies and procedures to govern their ESG practices. “At a fundamental level, the federal securities laws enforce a straightforward proposition: Investment advisers must do what they say and say what they do,” said Sanjay Wadhwa, Acting Director of the SEC Division of Enforcement, in the press release announcing the WisdomTree resolution. This article discusses the facts giving rise to the enforcement proceedings and the settlement terms. See “SEC’s Grewal Discusses Enforcement’s Focus on Preventing False and Misleading ESG Claims” (Oct. 24, 2024).

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