Commissioner Gallagher contends that some recent enforcement actions "have unfairly contorted the rule to treat the compliance function as a new business line," thus giving compliance officers the unwelcome role of business heads. In this and other respects, Gallagher says the agency is setting up a perverse system of incentives for those who ought to be its allies, the CCOs of IAs.
Hedge Fund Regulation
Guest columnist Shane Brett discusses a new RR Donnelley survey on the MMIF challenges facing fund administrators.
This Lancelot's adventures came to a bad end: defeated by the dragon of insolvency. But its official liquidator did win a victory over an investor seeking special treatment via a side letter.
Two rules within the CFTC rulebook that offer exemptions for certain CPOs from certain regulatory requirements mirrored the original pre-JOBS Act Reg D on the SEC side. But of course we are now in a post-JOBS Act world, and the CFTC staff has now acted, not through a rule change but by staff letter, to harmonize with its sister agency and with the JOBS Act mandate.
Guest columnist Rick Ehrhart looks at hedge fund incentive compensation.
The SEC says that it does not believe that “merely” providing analysis or information to the active members of a policy-making committee within a fund management firm is the same thing as making policy for the firm. That seems likely to provoke some wonderful hair-splitting disputes going forward.
AIFMD brings many changes to the table. Grant Thornton Ireland has issued a new paper looking at the ramifications.
In January 2013 the Council of the European Union agreed to allow 11 member states to institute a sweeping financial transaction tax as a matter of "enhanced cooperation." Now, a year later, the EU's tax commissioner, a one-time enthusiast of the idea, is signaling compromise.
Ogier Partner Peter Cockhill recently examined the direction in which the Cayman Islands regulator CIMA is headed on fund governance. He thinks the costs of the new framework, though real, will prove reasonable given the benefits.
Managers broadly are of the view that the more complex a regulation, the more expensive it is for those affected. The regulations that concern them the most in this respect are: FATCA and AIFMD.
Buried in the midst of a wide-ranging report, we have found the news that the old-fashioned FIX protocol is still a vital force, unlikely to be replaced by the flashier open-source FpML.
In 1992 the Supreme Court ruled that the issuance of bonds is itself a commercial activity, thus bond defaults by sovereigns are clearly subject to litigation in U.S. courts. One of the more intuitive findings of the authors of a new empirical study of such lawsuits is that the identity of the characteristic plaintiffs has changed over time.
Markets are bullish on the United States in particular, though this is so only with some obvious qualifications: they don’t expect that a go-go climate will return any time soon, but they do expect a slow-and-real recovery. Likewise, markets are modestly bullish on at least the north of Europe.
A veteran of hedge funds and private equity, Jeff Joseph offers some comments to the U.S. Securities and Exchange Commission on the JOBS Act and what this legislation has the potential to mean to the global alternative investment community.
The meat of the guide addresses what AIMA Canada considers sound practice in marketing and promotion, such as in the calculation and presentation of returns, in selecting a benchmark relevant to a specific strategy, and in explaining the various ratios used for the same purpose. It notes that the Association for Investment Management and Research’s Performance Presentation Standards (AIMR-PPS) recommend using a time-weighted method for the calculation of returns, a model otherwise known as the Modified Dietz method.
By Ron S. Geffner, Partner, Head of Financial Services, Sadis & Goldberg LLP On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act, H.R. 3606 (“JOBS Act“). The JOBS Act requires the Securities & Exchange Commission (“SEC“) to revise existing rules to implement many of the provisions of the JOBS Act. This […]
"This industry will perhaps never really shake off the aura of secrecy and inevitable rumor mill, but investors and risk managers need to really start to judge funds on the metric against which the funds judge themselves: performance."
Diane Harrison examines the state of the hedge fund industry and regulation.
The Grant Thornton paper maintains that the asset management industry achieved "performance and operational efficiencies" during 2011, and this sounds like the sort of marginal adaptation that play a large part in Charles Darwins' writings, to which GT's Winstoin Wilson alluded. But ... the report also treats the regulatory environment as a meteor, capable of wiping out even the best-adapted of pre-collision dinosaurs. So "the Darwinian process" is an odd label for what it describes.
Three lawyers with Covington & Burlington write about the new intensified scrutiny to which regulators are subjecting algorihtmic and high frequency trading. They place it in the context of an old dispute over what constitutes market manipulation. According to the broadest view, if a trader's 'sole intent' in making even a quite ordinary buy or sell order is to move the price, then the resulting trade is market manipulation.
With the enactment of the Dodd-Frank Act (more formally the Wall Street Reform and Consumer Protection Act) in 2010, Congress demanded change. It did not specifically demand changes in the rules relating to CPOs, but it did demand that the SEC change certain rules regarding hedge fund advisors, and the CFTC has decided that a reconsideration of the CPO rules is “consistent with the tenor of the provisions” of that act because the “sources of risk delineated in the Dodd-Frank Act with respect to private funds are also presented by commodity pools.”
AIMA, in a report sharply critical of the proposed European Union financial transaction tax, sets out the way in which the tax could burden businesses, and their consumers, to a degree far greater than the proponents contend. After all, any single product may pass through several stages between raw materials and final consumer, as there are several steps between farmer harvesting wheat and retail outlet, such as Tesco, selling pasta. Businesses at every stop along the way (farmers, wheat processers, pasta extruders) will naturally want to hedge their own operational risks in the financial markets, so the price of the finished product will reflect the repeated imposition of the FTT.
There is an old story often attributed to economist Burton Malkiel. A professor of finance and an undergraduate are walking together. They see what looks like a $100 bill lying on the sidewalk. The naïve student bends down to pick it up, but the professor says, “Don’t bother. If it were a real bill, it […]
The explosion of the subprime market may yet produce a significant change in the way investors and their managers with a distressed-assets strategy maneuver for advantage in the context of Chapter 11 proceedings
Clearing within ten days after the transaction (T+10) was once the norm, though it now seems archaic. Clearing overnight or in a once-a-day cycle will in the years ahead become equally unsatisfactory. It may soon “become standard practice for risk managers and eventually traders to demand proof that their trades have been cleared mere seconds after execution.”
There are high hopes that the new UCITS framework that took effect in July could herald rationalisation amongst Europe’s regulated hedge funds. While tax factors could slow down the process, UCITS has plenty of other growth drivers besides cost savings.
As if there wasn't enough confusion in the roiling U.S. capital markets and regulatory environment, the U.S. Second Circuit Court has issued a decision that will make alpha that more elusive for hedge funds involved in shareholder activism.
There's nothing like a good list of acronyms to confuse even the most immersed hedge fund aficionado. A new report by KPMG and RBC Dexia unintentionally takes the industry's affinity for acronyms up a notch.
Study finds “tantalizing insight into how hedge funds funds generate alpha.” And it’s not how you think…May 26th, 2011 | Filed under: Hedge Fund Regulation, Today's Post
After being castigated in 2003 for their cozy relationship with their i-banking brethren, equity research departments are now accused of being in cahoots with the hedge fund community.
Fiduciaries think of a client's needs before their own - sacrificing the latter if required. But does the requirement for a hedge fund manager to put their client's interests before their own help or hinder the search for alpha? It depends on who you ask.
A funny thing happened on the way to blaming hedge funds for the global financial crisis, formulating a new set of rules to monitor them, politically compromising and scaling back on those rules and then slamming them through.
Hedge fund crusader Phil Goldstein is back in court appealing a verdict that he says is unconstitutional. But this time around, the opinions of a small group of journalists, academics and students could have a profound and lasting impact on the way hedge funds communicate with the outside world.
The Alternative Investment Fund Management Directive has cast hedge fund managers as pariahs to be closely monitored, but research and history suggest the industry will adapt and survive.
Yes. You read it right. Regulations that could actually lead to more alpha? Hey, it can happen.
The SEC's attempt to regulate hedge funds in 2005 hinged on the definition of "client." By avoiding that question in 2010, its newest kick at the can seems likely to allow the issue to fester even longer. As a result, a University of Washington law professor ponders the question of to whom, exactly, a hedge fund adviser owes its fiduciary duty.
It's easy to see why investors find insider trading morally objectionable. But if market prices are a critical form of information transmission, then does "some" insider trading actually help society? And if it does, then what kinds of insider trading?
As UCITS-compliant hedge funds become increasingly popular among funds of hedge funds in particular there is growing concern that underlying managers may be bending the rules to get the UCITS seal of approval.
With the practice of securities lending likely to undergo substantial regulatory change, a recently published paper argues that "CCPs", already being adopted, are the best way forward.
Report: Median performance fee earned by UK mutual funds that have one is, well, not really an issueAug 29th, 2010 | Filed under: Hedge Fund Regulation, Investment Management Fees, Today's Post
A new report by Lipper examines the early impacts of the UK's endorsement of performance fees for mutual funds.
A recent SEC ruling requires investment advisers to use "plain English" when communicating with clients. But for now, hedge funds can keep confusing people...
As policymakers debate the value of hedge funds as liquidity providers, they should take note of this recent academic paper.