Sophisticated Investor Funds – Page 8 – Global Investment Law Watch

Europe: ESMA Advocates More Specific Restrictions on the Costs Fund Managers May Pass on to Investors

The European Securities and Markets Authority (ESMA) has suggested that the European Commission should clarify the costs that UCITS management companies and AIFMs may pass on to investors under existing rules that prohibit “undue costs”. Costs for this purpose include fees payable to the manager and other fund service providers and all other one-off, recurring or transaction-related costs. The purpose of the proposed clarification would be to provide for better convergence between the approaches of different EU member states, and a better basis for national regulators to take supervisory and enforcement actions in this area.

United States: New Conference, More Rulemaking?

May 22 2023

At the Conference On Emerging Trends In Asset Management sponsored by the US Securities and Exchange Commission (SEC) and held 19 May 2023, Chair Gary Gensler, and Director of the SEC’s Division of Investment Management, William Birdthistle, called for greater discourse with industry participants and highlighted the strengths of recent rulemaking activities of the SEC.

Mr. Birdthistle kicked off the conference by referring to funds and investment advisers as “critical agents” in the investment management industry and in advancing the SEC’s mission. He also acknowledged the need for the SEC and its staff to be open to different opinions. He did not, however, indicate how such different views have been—or would be—addressed in the rulemaking process or otherwise.

Australia: Preparing for the Extension of the Superannuation Performance Test to Trustee-Directed Products

May 18 2023

By Jim Bulling and Grace Hall

The release of draft regulations by the Australian Government and publications by the Australian Prudential Regulation Authority (APRA) provide further guidance to regulated superannuation funds on how annual performance assessments (the performance test) will apply to trustee-directed products.

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.

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.

Europe: Central Bank’s Dear CEO Letter Highlights Actions to be Addressed by FMCs and AIFMs Without Delay

Apr 28 2023

By Gayle Bowen and Áine Ní Riain

On 24 March, the Central Bank of Ireland issued a “Dear Chair” letter following its review in 2021 of the costs and fees charged to UCITS as part of the ESMA Common Supervisory Action (the CSA).

The letter, which is addressed to Irish UCITS fund management companies (FMCs), sets out the Central Bank’s main findings from the 2021 review and its expectations on actions to be taken by FMCs to address deficiencies identified. Despite the focus being on UCITS FMCs, the Central Bank specifically emphasises that it will expect its findings and actions to be considered also by Irish AIFMs with reference to AIFs under management.

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.

Category:Sophisticated Investor Funds