Institutional Investors – Page 5 – Global Investment Law Watch

United States: SEC Charges Two Broker-Dealers With Record Retention Violations

May 16 2023

By: Neil T. Smith, Hayley Trahan-Liptak, and Christopher F. Warner

In November 2022, The Securities and Exchange Commission (SEC) Chair Gary Gensler stated that the SEC was only just getting started in its efforts to ensure firms were properly retaining business-related communication occurring over off-channel mediums. Two settled orders against two prominent broker-dealers released 11 May 2023 emphasize that point.

As with the SEC’s December 2021 and September 2022 settlements with major Wall Street firms, the 11 May 2023 settlements find violations of the record keeping requirements of Exchange Act Rule 17a-4 based on the firms’ failures to retain off-channel business-related communication. In the orders, which closely track the September 2022 orders, the SEC emphasized that the broker-dealers engaged in “pervasive off-channel communication” that occurred at all firm levels. The SEC continued to identify discussions about clients, client meetings, investment strategy, and communication regarding market color, trends, and events as “concerning” the broker-dealers’ respective businesses.

The May 2023 and September 2022 orders diverge with the discussion of cooperation. The SEC emphasizes in the recent orders that it considered the broker-dealers’ self-reporting, immediate remedial action, and cooperation with the SEC’s ensuing investigation when assessing penalties. Ultimately, the SEC ordered penalties of US$15 million and US$7.5 million, a fraction of the US$50 to US$125 million penalty range assessed in most prior similar orders.

It is clear the SEC’s investigatory efforts into record retention are in full swing. In fact, since the Fall of 2022, a myriad of firms have publicly announced that they are under investigation by the SEC in connection with potential record retention issues. It is likely additional formal charges are on the horizon.

Australia: ASIC Releases Report on Recent Greenwashing Actions

May 16 2023

By Matthew Watts and Rebecca Mangos

The Australia Securities and Investment Commission (ASIC) has published a report on its regulatory interventions made between 1 July 2022 and 31 March 2023 in relation to greenwashing concerns (which can be accessed here). The report covers ASIC’s issuance of greenwashing infringement notices during the period and its observed increase in representations made by listed companies, managed funds and superannuation funds on environmental, social and governance credentials.

Australia: ASIC Reports on DDO Compliance by Investment Product Issuers

May 08 2023

By Kane Barnett and Bernard Sia

On 3 May 2023 the Australian Securities and Investments Commission (ASIC) released its review on compliance by investment product issuers of the Design and Distribution Obligations (DDOs). In ASIC’s view, there is still considerable room for improvement by product issuers.

United States: SEC Adopts Amendments to Form PF and Significantly Expands Reporting Requirements

May 04 2023

By: Pablo J. Man, Ruth E. Delaney, Matthew F. Phillips, and Gustavo De La Cruz Reynozo

On May 3, 2023, the Securities and Exchange Commission (“SEC”) approved amendments to Form PF, the confidential reporting form required to be filed by private fund advisers. The amendments expand the scope of Form PF’s disclosure obligations to require large hedge fund advisers to file new “current” reports and all private equity fund advisers to file new quarterly reports upon the occurrence of certain events. Large private equity advisers will also be required to provide new information in their annual updates.

The amended Form PF will require:

Current Reporting Requirements for Large Hedge Fund Advisers. In addition to their existing quarterly filing obligations, advisers with at least $1.5 billion in assets under management (“AUM”) attributable to hedge funds will be newly required to report certain events—such as extraordinary investment losses, significant margin and default events, and large withdrawal and redemption requests—as soon as practicable, but no later than 72 hours, after they occur.

Quarterly Reporting for Private Equity Fund Advisers. Within 60 days of the end of each fiscal quarter, each private equity fund adviser will be required to report any completion of an advisor-led secondary transaction or investor elections to remove a fund’s general partner or to terminate a fund’s investment period during the preceding quarter.

Additional Reporting for Large Private Equity Fund Advisers. Advisers with $2 billion or more of private equity fund AUM will be required to disclose a range of new information in their annual updates to Form PF, including: (a) information about the implementation of general partner and limited partner clawbacks; (b) details about a fund’s investment strategies; (c) additional information about fund-level borrowings; (d) more granular information about the nature of reported events of default; (e) additional identifying information about institutions providing bridge financing; and (f) information about a fund’s greatest country exposures.

The new “current” reporting and quarterly event reporting requirements take effect six months following publication of the final rule in the Federal Register. The other amendments take effect one year following publication of the final rule in the Federal Register.

APAC: Managed Accounts and Conflicts—Part 4: Separate Managed Accounts vs. Funds-of-One

May 03 2023

By Scott Peterman

In our last post, we highlighted a key difference between separate managed accounts (SMA) and funds-of-one. By virtue of a power of attorney granting authority to a fund manager to trade assets of an account, the account owner can terminate the power of attorney (POA) at any time, with little recourse left to the fund manager other than hoping to recoup start-up expenses incurred in establishing the SMA. This is so even though the investment management agreement governing the SMA may have specified a very different set of termination rights and obligations. As between the POA and the investment management agreement, the POA is given greater weight on the basis that general principles of fiduciary duty would not generally permit a fund manager to compel an investor to have an advisory relationship with the fund manager

Australia: Why You Should (or Shouldn’t) Use a CCIV

May 03 2023

By Kane Barnett

Australia’s new fund vehicle, the corporate collective investment vehicle (CCIV) came in to effect on 1 July 2022. Since then adoption has been meagre to say the least.

United States: SEC Staff Finds Safeguarding Policies and Procedures Lacking at Branch Offices

May 01 2023

By: Keri Riemer and Brian Doyle-Wenger

On 26 April, 2023, shortly after the U.S. Securities and Exchange Commission (SEC) proposed rule amendments that would require broker-dealers and investment advisers (collectively, firms) to comply with enhanced compliance requirements relating to sensitive customer information, the SEC’s Division of Examinations (staff) issued a risk alert highlighting the need for firms to have written policies and procedures for safeguarding customer records and information at their branch offices.

APAC: Managed Accounts and Conflicts—Part 3: Separate Managed Accounts vs. Funds of One

Apr 19 2023

By Scott Peterman

In our last post, we itemized several incentives motivating many institutional investors to favor management of their investment assets in a separate managed account (SMA) or fund-of-one as opposed to investing those assets in a commingled fund. A key distinction between investing assets in an SMA or fund-of-one that is often overlooked is that the owner/investor in an SMA directly owns those investment assets. This is not true of an investor investing in a fund-of-one. In the latter, the fund owns those assets, not the investor.

Singapore: MAS Publishes Observations From Inspection of Venture Capital Fund Managers

Apr 12 2023

By Edward Bennett and Jordan Seah

Earlier this year, selected market participants were issued a report from MAS on observations from its 2022 inspection of licensed Venture Capital Fund Managers (“VCFMs”).

Having requested that MAS publish its report more widely, the circular is now publicly available here.

APAC: Managed Accounts and Conflicts—Part 2: Managed Accounts vs. Commingled Funds

Mar 29 2023

By Scott Peterman

In our last post, we suggested that managed accounts of whatever structure have become more and more popular among institutional investors. Our list included advantages of managed accounts often seen in print or discussed among panel participants in seminars. We did not, however, itemize all of the incentives motivating many institutional investors to prefer managed accounts over commingled funds. We’ll do so now to introduce and illuminate the reasons why and how conflicts of interest are created when fund managers manage separate client accounts alongside commingled funds. And, hopefully, give you some takeaways when managing your own investment management business.

Catagory:Institutional Investors