Monthly Archives: January 2009

Secondary Hedge Fund Market

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Company Promotes Secondary Hedge Fund Trading

Some hedge funds, for a number of potential reasons, are closed for further investment by outside investors.  In these cases outside investors can try to get into the funds organically or they can enter the fund through the secondary hedge fund market.  In the secondary market, interests in a hedge fund are sold by withdrawing investors to investors who want to get into the fund.  There are many reasons why an investor would choose to sell through the secondary market instead of simply redeeming.  The most obvious is that the investor needs immediate liquidity.  While there is a small secondary market in hedge fund interests, it is not always easy to find investors wishing to sell on the secondary market.  Continue reading →

Hedge Fund Best Practices

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Private Group Promulgates Hedge Fund Best Practices

Under direction from the President’s Working Group on Financial Markets, a private sector group comprised of financial industry professionals and regulators released a finalized set of best practices for hedge funds and hedge fund investors.  Continue reading →

Revising Hedge Fund Offering Documents

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It is very important that hedge fund managers always provide potential investors with hedge fund offering documents which are current and up to date.* Because of certain changes to the various hedge fund laws within the past few months (and because of the increased likelihood of future rules/regulations changes) a hedge fund private placement memorandum which was current 3 months ago will likely need to be revised.

*As always, hedge fund offering documents should only be drafted by a knowledgeable hedge fund attorney.

Specifically, there are two changes which will need to be implemented immediately – the change of the new issue rule (applicable to most funds) and the abolition of Section 409 (applicable to a small number of hedge funds). This article will detail the changes that will need to be made and will discuss how your hedge fund attorney will go about this. Continue reading →

New York Hedge Fund Law

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Starting a Hedge Fund in New York

It is no secret that New York is the center of the investment management universe and the home of a large majority of hedge funds.  For both small and large managers New York offers many befits, namely a proximity to Wall Street and many of the investment banks and also an exemption from investment advisor registration (see discussion below).  This article discusses the New York investment advisor exemption, the Form 99 filings and New York investment advisor FAQs. Continue reading →

What is a Ponzi Scheme?

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Definition of a Ponzi Scheme

With all of the talk recently about the Madoff scandal and various other ponzi scheme’s affecting the hedge fund and investment management industry, we have decided to post a definition of a Ponzi scheme.  The definition below comes from the SEC and can be found here.  Continue reading →

Nevada Hedge Fund Law

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Starting a Hedge Fund in Nevada

While Nevada may be the favorite place for hedge fund managers to spend their money, it is not necessarily a place where hedge fund managers want to be located.  The reason is that Nevada requires hedge fund managers with a place of business in Nevada to be registered as an investment advisor with Nevada.  If a start up hedge fund manager does not want to register as an investment advisor, they should not establish a place of business within Nevada. Continue reading →

CFTC Uses New Enforcement Authority to Police Forex

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Forex Firm Caught Operating a Ponzi Scheme

The CFTC just announced that it charged a group out of Atlanta with operating a Ponzi scheme.  This is the first action the CFTC has brought against a forex firm for fraud.  At the beginning of last year Congress passed the Farm Bill which provided the CFTC with more authority for regulating the off-exchange foreign currency markets (also known as the spot forex markets).  This action indicates that the CFTC is serious about cleaning up the forex markets.  As we’ve detailed before, forex registration will be coming shortly.  Continue reading →

Madoff Whistleblower

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The hedge fund industry has been shaken by volatile financial markets and the Madoff investment scandal of December 2008.  While the hedge fund and investment management industries are changing because of these twin forces, many people are looking back to try to piece together what has happened and more importantly why it happened.  One primary source will definitely be “The World’s Largest Hedge Fund is a Fraud” – a whistleblower manifesto provided to the SEC on November 7, 2005 by Harry Markopolos.  This article provides a link to the manifesto (Madoff Whistleblower Report), and discusses the observations and predictions therein. Continue reading →

Incubator Hedge Funds

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How to Create an Auditable and Marketable Trackrecord

One of the biggest hurdles that start up hedge fund managers face is the issue of having a marketable track record. Many managers do not have an audited marketable trackrecord for any number of reasons. While it is not strictly necessary to have an audited marketable trackrecord, it will help with the marketing efforts when soliciting investors, especially institutional investors. To solve this problem many start up managers establish incubator hedge funds. Continue reading →

Hedge Fund Affiliated Broker Dealer

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What does it mean for a hedge fund to have an affiliated broker-dealer?

Definition of Broker-Dealer

We will start off by defining a broker-dealer.  Basically a broker-dealer is the term used in the investment management industry for a firm which executes securities trades.  The trades may be executed by these firms through an agency relationship (commission) with the client or through dealer (mark up) relationship with a customer.  Some firms act in only one capacity and some act in both capacities depending on the securities traded. Continue reading →