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    Mar. 27, 2025

Compliance Corner Q2‑2025: Regulatory Filings and Other Considerations Hedge Fund Managers Should Note in the Coming Quarter

This installment of the Hedge Fund Law Report’s quarterly compliance update highlights key upcoming filing deadlines and reporting requirements fund managers should be aware of during the second quarter of 2025. This guest article by ACA Group consultants Grazia Gatti, Luis Garcia and Dan Campbell also discusses recent shifts to the regulatory approach of both the SEC and CFTC resulting from the change in the U.S. administration, along with two recent SEC actions concerning anti-money laundering. For more from ACA Group, see “ACA Compliance Testing Survey: Electronic Communications Displace Marketing As Top Concern” (Jan. 30, 2025).

Implementation of Cash Hurdles for Fund Manager Incentive Fees (Part Two of Two)

A hedge fund manager that decides to implement cash hurdles for incentive fees undertakes a far-reaching change with significant consequences for both investors and the manager itself. It is a decisive departure from the familiar “2/20” compensation structure that hedge funds have traditionally used. Although, in theory, the implementation of cash hurdles goes far toward addressing a perceived misalignment of investor and manager interests, along the lines set forth in the “Open Letter to the Hedge Fund Industry” from 29 of the world’s largest institutional investors and pension funds, the practical reality is far more complex. This is especially true for an existing manager that already has governing documents in place and will have to make changes to them, as opposed to a startup drafting its documents from scratch. This second article in our two-part series delves into the operational logistics of what needs to happen when a fund manager decides to adopt cash hurdles and offers key takeaways. The first article explained what cash hurdles are and summarized the advantages and challenges posed by their implementation. See “Established Hedge Fund Manager Study Examines Strategies, Fees, Liquidity and Structures” (Nov. 21, 2024).

Common SEC Exam Issues for Large Advisers and How to Avoid Them

Large fund advisers with diverse funds, clients and strategies face considerable compliance challenges – all of which are fodder for SEC examiners. A segment of Seward & Kissel’s Regulatory Roundup series looked at the complex examination issues faced by large advisers and how advisers can address them. The program, which featured Seward & Kissel partners Daniel Bresler and Debra Franzese and senior associate Theodore Kaminski, covered compliance with the Marketing Rule, conflicts of interest, fee practices, investment due diligence, investment allocations, disclosure practices and allocation of expenses. Although it remains to be seen how the incoming SEC leadership will approach those issues, “these topics are not necessarily divided on party lines,” said Bresler, who noted that both the Marketing Rule and the SEC’s interpretation of advisers’ fiduciary duty were issued during President Trump’s first term. This article distills the key takeaways from the program. See “Preparing for and Navigating SEC Examinations” (Dec. 19, 2024); and “SEC 2025 Exam Priorities Stress Core Fiduciary Duties and Effective Compliance Programs” (Dec. 5, 2024).

CFTC Advisory on Self-Reporting, Cooperation and Remediation Overhauls Years of Guidance

In an effort to achieve “regulatory consistency, transparency and clarity,” the CFTC Division of Enforcement (Division) has issued an Enforcement Advisory (Advisory) with guidance to CFTC enforcement staff on evaluating a person’s self-reporting, cooperation and remediation when recommending enforcement actions to the Commission. The Advisory, which supersedes all prior guidance on the subject, also sets forth factors the Division will consider in deciding whether to reduce proposed penalties in cases in which there has been self-reporting, cooperation and remediation. This article parses the Advisory and the associated statements of CFTC leaders, with commentary from former CFTC attorney Elizabeth Lan Davis, now a partner at Davis Wright Tremaine LLP. See “SEC and CFTC 2024 Enforcement Results: Record-High Financial Remedies Across Fewer Actions” (Jan. 30, 2025); and “What’s Next for the SEC and CFTC? A Look at the Latest Reg Flex Agendas” (Aug. 15, 2024).

SIFMA Secures Injunction Against Missouri’s ESG Disclosure Rules

Consideration of environmental, social and governance (ESG) criteria in the investment process has become another battlefield in our sharply divided political landscape. In recent years, many states have proposed or enacted anti-ESG laws or regulations that seek to curtail or penalize the use of ESG criteria by state retirement plans or other entities. In June 2023, Missouri’s Secretary of State and Securities Commissioner adopted new regulations requiring investment advisers and broker-dealers to disclose to clients – and obtain express prior written consent to – their consideration of social or nonfinancial criteria in the investment process. In August 2023, the Securities Industry and Financial Markets Association (SIFMA) filed an action in the U.S. District Court for the Western District of Missouri (Court) to invalidate those rules and permanently enjoin their enforcement. On August 14, 2024, the Court granted SIFMA’s motion for summary judgment in its entirety. The Missouri defendants subsequently abandoned their appeal and agreed to pay SIFMA $500,000 for its attorney’s fees, which the Court accepted in its order of final judgment on October 17, 2024. This article discusses the background of the litigation and the Court’s decision, with commentary from Robert A. Skinner, partner at Ropes & Gray. See “Key Developments & Considerations in ESG Regulations for Asset Managers Navigating Global Compliance Duties” (May 23, 2024).

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Women to Watch: Contributions, Achievements and Observations of Outstanding Female Professionals

To mark International Women’s Day, women editors and reporters at ION Analytics interviewed outstanding women in the industries and jurisdictions we cover. In this part, Law Report Group editors Jill Abitbol, Robin L. Barton and Megan Zwiebel profile notable women in data privacy, cybersecurity, private funds and anti-corruption law, including Anne-Gabrielle Haie, Jessica Lee, Micaela McMurrough, Laura Perkins, Amanda Raad, Madelyn Calabrese, Ranah Esmaili and Genna Garver. Enjoy reading their inspiring remarks here.