Monthly Archives: January 2009

Geithner Testimony – Consider Regulation of Hedge Funds

Nominee Calls for More Financial Regulations

Treasury Secretary nominee Timothy Geithner testified before the Senate Finance Committee on January 21, 2009.  In prepared remarks Geithner hints at a desire to increase regulation of the financial markets:

I believe that markets are central to innovation and to growth, but that markets alone cannot solve all problems. Well-designed financial regulations with strong enforcement are absolutely critical to protecting the integrity of our economy.

During the testimony Geithner faced pointed questions regarding tax policies and the failure of the current regulatory regime to effectively police the financial markets.  Many times he stated that increased regulation may be necessary to protect all participants within the financial markets.  Specifically with regard to hedge funds, in his answer to a question posed by Senator Grassley, Geithner stated “I believe that we should consider requiring registration of hedge funds.” Continue reading

New CFTC Chairman Makes Statement

Statement by CFTC Acting Chairman Michael V. Dunn
January 21, 2009

As I temporarily take over at the helm of the CFTC, I want to thank former Acting Chairman Walter Lukken for his leadership during a very challenging time. He faced a period where economic events demonstrated, most vividly, the perils of removing large swaths of our derivatives markets from oversight. To address these challenges, Walt did not hesitate to try new approaches. Walt also recognized the need for additional resources and, as such, he was a steadfast advocate for increased agency funding . . . funding that was—and continues to be—critical to the CFTC continuing to successfully fulfill its regulatory responsibilities. Continue reading

Hedge Fund Pitchbook

Using a Pitchbook to Market Your Hedge Fund

Marketing a hedge fund is one of the more difficult parts of running and managing a fund.  Many times, managers will discuss investments into a fund through a face-to-face meeting with a potential investor.  During this meeting, a manager will utilize a “pitchbook” as the central way of conveying the most important aspects of an investment in the fund.  This article will provide an overview of the most common parts of a hedge fund pitchbook.  We have also provided a sample pitchbook below. Continue reading

Charges for Nadel

SEC Charges Missing Trader for Defrauding Investors at Sarasota-Based Hedge Funds


Washington, D.C., Jan. 21, 2009 — The Securities and Exchange Commission today charged Arthur Nadel of Sarasota, Fla., with fraud in connection with six hedge funds for which he acted as the principal investment advisor. According to the SEC’s complaint, Nadel provided false and misleading information for dissemination to investors about the funds’ historical returns and falsely overstated the value of investments in the funds by approximately $300 million. Continue reading

What is a hedge fund? (Part 2)

Another Hedge Fund Definition

The term “hedge fund” has been defined numerous times in various government reports and in other financial publications.  We have provided a previous Hedge Fund Definition.  The definition provided below comes from the President’s Working Group report on Hedge Fund Best Practices.


By “hedge fund” we mean a pooled investment vehicle that generally meets most, if not all, of the following criteria:  (i) it is not marketed to the general public (i.e., it is privately offered), (ii) its investors are limited to high net worth individuals and institutions, (iii) it is not registered as an investment company under relevant laws (e.g., U.S. Investment Company Act of 1940), (iv) its assets are managed by a professional investment management firm that is compensated in part based upon investment performance of the vehicle, (v) its primary investment objective is investing in a liquid portfolio of securities and other investment assets, and (vi) it has periodic but restricted or limited investor redemption rights. (This description is based in part on the definition in the Managed Funds Association’s 2007 Sound Practices for Hedge Fund Managers.) Although hedge funds may invest in private equity and real estate, this Report is not addressed to the specific considerations of private equity or real estate funds.  We use the terms “alternative asset manager” and “manager” to refer to the entity that establishes the investment profile and strategies for the hedge fund and makes the investment decisions on its behalf.

Washington DC Hedge Fund Law

Starting a hedge fund in the District of Columbia

In DC, things are starting to get back to normal post-election.  Hedge fund and investment managers who are located in DC, however, will generally need to be registered as investment advisors with the Department of Insurance, Securities and Banking (ISB).  I’ve reviewed the DC investment advisory rules and have found that they have the standard investment advisory definition and, generally, no exemption from the registration provisions for hedge fund managers.  This means that start up hedge fund managers with a place of business in DC will need to register as an investment advisor with the ISB.  The ISB website is fairly helpful and provides links to good information regarding registration.  I have posted one of these resources below, dealing wih the filing requirements for DC investment advisory registration.  Continue reading

MBA Students Run Hedge Fund

It is no secret that some of tomorrow’s brightest hedge fund managers are working with investment management and hedge fund techniques during their MBA programs.  Sometimes the work is self initiated – running incubator hedge funds outside of class.  Sometimes the work is part of a school sponsored program or class designed to give MBA students a crash course in hedge fund management.  The release below discusses a recent program by Cornell’s Johnson school which has been particularly successful.

If you are a current MBA student and are thinking about starting an incubator hedge fund, or other type of asset management business, we would be happy to discuss your current and future plans.  Continue reading

Annual Reminder for CPOs and CTAs

Commodity Firms Need to Complete Annual Regulatory Information

The NFA recently released a regulatory reminder to firms which are registered as commodity pool operators and/or commodity trading advisors.  The reminder reminds CPOs and CTAs that there are certain annual regulatory items which a firm must complete in order to remain in good standing with the NFA.  I have reprinted these two releases below.  As a summary, the reports emphasize:

  1. Firms must complete an annual update and questionnaire.  Firms must pay of yearly dues to the NFA (which can be done online).  Firms should also make sure that all employees are appropriately registered as Associated Persons, as necessary.
  2. Firms should review the NFA Self Exam checklist to ensure compliance.
  3. Firms should send Privacy Policy to all investors/ clients.
  4. Firms should review and test the Disaster Recovery Plan.  If necessary, adjustments should be made.
  5. Firms should review Ethics Training Procedures.   If necessary, appropriate ethics training should be provided.
  6. Firms should file any new exemption notices with the NFA, if necessary.
  7. Firms should review their Disclosure Document.  As a reminder, the Disclosure Document must be no more than 9 months old and reviewed by the NFA.  If the CPO or CTA firm also trades in the off-exchange forex markets, the Disclosure Document must incorporate the new forex rules which were adopted on November 30, 2008 (see NFA Compliance Rule 2-41 on post regarding NFA to Begin Regulating Forex).
  8. (For CTAs) If the firm places bunched orders, the firm must conduct (and document) quarterly analysis of the of order allocation method.  The order allocation method must be fair and equitable.
  9. (For CPOs)  Firms must distribute the pool’s Annual Report to investors; Annual Report must also be submitted to the NFA.

Many of the above items can be done online.  Many of the above items should be overseen by a hedge fund/ securities attorney or an experienced NFA compliance consultant.  Please contact us if you would like more information on our annual NFA compliance packages which can be modified based on your needs.  We can also provide compliance support on an hourly basis. Continue reading

Hedge Fund Best Practices – Full Report

Full Report of Best Practices for the Hedge Fund Industry

As we discussed in an earlier article on Hedge Fund Best Practices, the President’s Working Group outsourced the creation of best practices for the hedge fund industry.  The report below, reprinted in its entirety, provides a comprehensive review of the major issues which hedge fund managers should be aware of when they are establishing their business.  I personally believe that all of the best practices below are reasonable and will, over time, become standard within the industry.

The report is broken up into five sections: (1) valuation, (2) risk management, (3) risk management, (4) trading and business operations, and (5) compliance.  Because the report is so long we will be providing a daily detailed analysis of each section. If anyone reads through the report and has comments, we would be happy to publish those comments as well.  Continue reading