Monthly Archives: January 2012

NFA Provides Guidance to CTAs re: MF Global

Trading Program Performance Presentation FAQs

Managers registered with the CFTC as either CTAs or CPOs are required to file a disclosure document with the NFA for review by the NFA prior to using the documents to solicit clients/investors.  The disclosure documents are required to conform with certain NFA rules.  The NFA previously provided guidance to CPOs with respect to disclosures regarding the MF Global bankruptcy.  Specifically, the NFA provides guidance with respect to the manner in which CTAs provide trading program performance information in their disclosure documents.  The NFA’s guidance provides CTAs with a reasonable way to deal with describing performance if assets were held at MF Global and then transferred after the bankruptcy.

CTAs should remember that disclosure documents must be update (and reviewed by the NFA) every nine months.  If you are a CTA that needs help updating your disclosure documents, please contact us.

The full NFA release is reprinted in full below.


Notice to Members I-12-04
January 27, 2012

Frequently Asked Questions – Trading Program Performance Calculations and Presentation by CTAs with Client Assets held at MF Global, Inc.

As a result of the October 31, 2011 bankruptcy proceeding involving MF Global, Inc. (MFG), NFA has received a number of questions from CTAs regarding how to calculate and present performance information for Trading Programs with client managed accounts that were affected by the MFG bankruptcy proceeding. NFA is issuing this notice to address those frequently asked questions.

1. All of my managed client accounts were held at MFG. The open positions in those accounts were subsequently transferred to another FCM. After the transfer, I continued to trade the accounts according to the trading program. How do I reflect the performance results?

Results should be based upon the assets under the CTA’s control. Any customer assets that were not included in the transfer may not be included in assets under management for purposes of calculating the trading program’s rate of return. The trading program’s capsule performance must include appropriate footnote disclosure (See question 5 below).

2. All of my managed client accounts were held at MFG. The open positions in those accounts were subsequently transferred to another FCM. After the transfer, all positions in those accounts were liquidated, and I did not resume trading these accounts in accordance with the trading program. How do I reflect the performance results after the transfer?

For November 2011, the performance capsule for that trading program should reflect NT to indicate that the program did not trade during the month. The trading program’s performance capsule must include appropriate footnote disclosure (See question 5 below).

3. My managed client accounts that were held at MFG and the open positions in those accounts were subsequently transferred to another FCM. After the transfer, I was able to continue trading those accounts. I have notional funding agreements with those accounts. Should I continue to include the amount of notional funds under the agreement in assets under management for purposes of calculating rate of return?

If you are trading the managed client accounts pursuant to an active notional funding agreement, you should continue to calculate rates of return using nominal account size as the denominator.

4. I have some managed client accounts held at MFG (with open positions that were subsequently transferred) and other managed client accounts held at other FCMs that are trading the same program. Since I did not have full control over the assets held at MFG, the rates of return for those accounts are materially different than the rates of return for accounts held at an FCM other than MFG. How do I reflect the performance results of the program?

For the month of November 2011, you should exclude the accounts that were held at MFG from the performance capsule. You do not have to prepare a separate capsule for these accounts. However, the trading program’s performance capsule must include appropriate footnote disclosure (See question 5 below), including the range of the rates of return for those accounts.

5. What information should I include in the footnote disclosure?

At a minimum, the footnote disclosure should:

      • Explain that as a result of the MFG bankruptcy proceeding, certain client managed accounts were not fully under the control of the CTA and therefore were excluded in whole or in part from the monthly performance calculation;
      • Indicate the number of client accounts excluded;
      • Indicate the amount of assets that were excluded;
      • Indicate the percentage that the excluded assets represent of total assets under management for that program as of October 31, 2011.

6. Do I need to amend my disclosure document to reflect this information?

CTAs that plan to solicit new clients must ensure that all material information in their disclosure documents has been updated including, but not limited to, changes to assets under management, past performance results, and the firm’s carrying broker relationships. As a reminder, all amended disclosure documents must be submitted to NFA for review prior to use.

Any questions regarding these disclosure issues should be directed to:

Susan Koprowski, Manager, at (312) 781-1288 or at [email protected]
Kaitlan Chi, Manager, at (312) 781-1219 or [email protected]
Mary McHenry, Senior Manager, at (312) 781-1420 or at [email protected]


Cole-Frieman & Mallon LLP works with CTA and CPOs and provides managed futures legal and compliance services.  Bart Mallon can be reached directly at 415-868-5345.


Investment Adviser Registration Presentation for Fund Managers

Below is a press release on the investment adviser registration presentation we developed to help fund managers with the SEC registration requirements.


Investment Adviser Registration Presentation for Fund Managers Released by Cole-Frieman & Mallon LLP

March 30, 2012 Deadline for SEC Registration Approaches

SAN FRANCISCO, CA – January 25, 2012 — Cole-Frieman & Mallon LLP, a leading boutique investment management law firm, is proud to announce the release of a presentation designed to help fund managers understand their registration obligations with the U.S. Securities and Exchange Commission. Many hedge fund managers who are not currently registered with the SEC will be required to be registered by March 30, 2012. Because of the application process, managers will need to submit their registration applications to the SEC by February 14, 2012. The presentation is posted on the Hedge Fund Law Blog at

The presentation, which includes a voice-over discussion, provides both hedge fund and private equity fund managers with a high level overview of the registration process and important compliance issues. “Most private fund managers have a general idea that they need to register with the SEC but many have delayed beginning the process,” said Bart Mallon, a partner with Cole-Frieman & Mallon LLP. “We developed this presentation to remind managers of the requirements but to also provide them with accurate information about what it means to go through the registration process and become registered with the SEC.”

In addition to information on the investment adviser registration process, the presentation also details compliance obligations of registered managers. “Fund managers tend to underestimate the importance of a proper SEC compliance program,” said Niel Armstrong, president of Gordian Compliance Solutions, a compliance consulting firm that offers fund managers outsourced SEC compliance solutions. “Implementing a robust compliance program that is tailored to a fund manager’s specific organizational structure is important from a regulatory perspective,

and many managers also find a business benefit when they employ compliance best-practices.”

Cole-Frieman & Mallon partner Aisha Hunt added “Fund managers generally have business specific needs that should be addressed during the SEC registration process. The presentation and supplementary information on the Hedge Fund Law Blog will provide those managers with the resources they need to understand the relevant business and compliance issues and begin the registration process.”


About Cole-Frieman & Mallon LLP

Cole-Frieman & Mallon LLP is a premier boutique investment management law firm, providing top-tier, responsive and cost-effective legal solutions for financial services matters. Headquartered in San Francisco, Cole-Frieman & Mallon LLP has an international practice that services both start-up investment managers, as well as multi-billion dollar firms. The firm provides a full suite of legal services to the investment management community, including: hedge fund, private equity fund, venture capital fund, and mutual fund formation, adviser registration, counterparty documentation, SEC, CFTC, NFA and FINRA matters, seed deals, hedge fund due diligence, employment and compensation matters, and routine business matters. The firm also publishes the prominent Hedge Fund Law Blog (, which focuses on legal issues that impact the hedge fund community. For more information please visit us at:

CFTC May Consider Vote on CPO Registration for Mutual Fund Managers

Three days ago, reports came out that the CFTC could be putting to a private vote the requirement that managed futures mutual funds be subject to marketing and registration rules when they use derivatives tied to commodities, which include commodity futures, options and swaps.  According to individuals who spoke on anonymity, the proposed regulation has been circulated for a vote by the CFTC’s five commissioners.  The commissioners could end up voting on the proposed regulation or deciding to hold a public vote.  If the proposal passes as adopted, managers to managed futures mutual funds would be required to register as commodity pool operators (CPOs) with the CFTC.

Background on CFTC Rule 4.5

As previously discussed in an earlier article on CFTC Rule 4.5, the issue of requiring mutual funds to register with the CFTC has been on the Commission’s radar for a long time.  In part because of pressure from the NFA, the CFTC proposed changes to Rule 4.5 in February of 2011 which would require CPO registration for most managers to managed futures mutual funds. While the current rule exempts managers from the registration requirements, prior to 2003 mutual fund managers were required to register as CPOs unless they:

  1. restricted their commodities and futures marketing activity,
  2. limited commodity futures or options activity to bona fide hedging transactions, and
  3. limited the aggregate futures margins and/or options premiums for non-hedging positions to 5% of the liquidating value of the entity’s portfolio (after taking into account unrealized profits and losses).

When the CFTC amended Rule 4.5 in 2003, it eliminated the trading and marketing restrictions and as a result managed futures mutual funds currently market participation in their funds as managed futures funds and have more than 5% direct exposure to managed futures for speculative purposes.  The February proposal seeks to reinstate the pre-2003 language in Rule 4.5.

Wholly-Owned Subsidiaries

It is important to note that the 5% limit in the proposed Rule 4.5 would apply to the entity filing for the Rule 4.5 exemption, not subsidiaries. Managed futures mutual funds are currently structured so that the managed futures investments are made through wholly-owned subsidiaries.  Wholly-owned subsidiaries would not qualify for the 4.5 exemption unless each subsidiary independently met all the requirements set forth in the proposed amendment. Therefore, mutual funds (i) with an investment objective to provide exposure to physical commodities as an asset class and (ii) that do so by investing in commodity futures, options, and swaps via wholly-owned subsidiaries, must make sure that those subsidiaries qualify for Rule 4.5 as well.


If the CFTC approves the proposed regulation, it would subject many mutual funds to CFTC registration and oversight by the NFA.


Cole-Frieman & Mallon LLP provides advice to managers in the managed futures industry.  The firm also has a robust alternative mutual fund practice led by Aisha Hunt.  Bart Mallon can be reached directly at 415-868-5345.  Aisha Hunt can be reached directly at 415-762-2854.


San Francisco Hedge Funds Care Poker Event

January 25th 

This is the second biggest event of the year for the hedge fund industry in San Francisco.  Ticket information is below and we all look forward to seeing you there.


California Hedge Funds to Support Child Abuse Prevention at 2nd Annual West Coast Committee of Hope Poker Tournament

Charity Poker Event Will Be Held Wednesday, January 25th at The City Club of San Francisco

NEW YORK – January 12, 2012 – Hedge Funds Care, a financial services industry-supported charity dedicated to preventing and treating child abuse, today announced that it would be holding the 2nd Annual West Coast Committee of Hope Poker tournament. Proceeds from the event will go to support child abuse prevention and treatment programs in the San Francisco Bay area. The event, sponsored by Battea Class Action Services and Ernst and Young, will be held on January 25th at 4:30pm PST at The City Club of San Francisco (155 Sansome Street, San Francisco, CA). Hedge fund industry participants who attend will enjoy an open bar, hors d’oeuvres and networking.

“This event has really grown in size and reputation over the last year and we expect to easily surpass last year’s fundraising achievements,” said Alicia Gavello, Fund Accountant at Partner Fund Management and the chair for this year’s benefit. “Programs that help treat child abuse are still badly underfunded and this is the California hedge fund industry’s chance to stand up and make a difference,” she added.

Since their inception, the West Coast Committee of Hope and Committee of Hearts have raised a combined $6.1 million and distributed 150 grants to Californian child abuse and prevention programs. A limited number of tickets and sponsorships are still available. For more information, please click here:

About Hedge Funds Care

Hedge Funds Care is an international charity supported largely by the alternative investment industry. Its sole mission is to support efforts to prevent and treat child abuse. Hedge Funds Care raises money, primarily through events, and awards grants in 12 major cities in the United States, Canada, the Cayman Islands, and the United Kingdom. Approximately 30 events are held annually. Hedge Funds Care’s grantees service children of all ages and span the entire spectrum from preventive and educational services for at-risk families to forensic interviews and treatment of children who have already experienced abuse. It generally funds small, community-based organizations, where small grants can have a profound impact. Since inception, Hedge Funds Care has awarded more than 660 grants totaling almost $24 million. Hedge Funds Care is largely a volunteer-driven organization, with professionals from the hedge fund industry serving on the Board and on local committees that plan events and evaluate grant proposals. The organization has a small staff based in New York City.


Hedge Funds Care – West Coast Events

Dan Butchko

Hedge Funds Care

212-991-9600 ext. 336

[email protected]

70 West 36th Street, Suite 1404    – New York, NY 10018 – tel. 212.991.9600 fax. 646.214.1079 –


Cole-Frieman & Mallon LLP provides hedge fund start-up and other legal services to hedge fund managers.  Bart Mallon can be reached directly at 415-868-5345.

California Proposes Private Fund Adviser Exemption

Hedge Fund Managers Exempt from Registration in California

As a general proposition, managers who are located in California must register as an investment adviser if they are providing investment advice for compensation.  There are exemptions from the registration requirement which we have detailed previously.  Because of the changes in the statutes and regulations at the Federal level, the states are changing their laws with respect to adviser registration.  Some states, such as California (see post), have adopted interim orders for certain advisers to address gaps in the Federal and state laws until state laws or appropriate regulations can be adopted.  California is proposing to adopt laws which would exempt many hedge fund managers from registration with the California Securities Regulation Division.

The proposed regulations if adopted would likely go into effect sometime in the first half of 2012.  The California Department of Corporations has requested comments on the proposal which may be submitted by February 20, 2012.  We have summarized the proposed exemption below and for more information, please see the following releases:

California Private Adviser Exemption Overview

If the proposed rule is approved, a manager would be exempt from registration as an investment adviser with the state of California if the manager meets the following requirements:

  • manager provides advice only to one or more “qualifying private funds” (includes Section 3(c)(1) funds and Section 3(c)(7) funds)
  • manager may not have not violated securities laws;
  • manager must file periodic reports with the Department of Corporations (an abbreviated version of the Form ADV);
  • manager must pay the existing investment adviser registration and renewal fees ($125); and
  • manager must comply with additional safeguards when advising funds organized under Section 3(c)(1) (other than venture capital companies). This includes:
    • only accredited investors may invest in the private fund;
    • the firm shall provided certain written disclosures about the services it provides, its duties, and other material information;
    • the firm shall obtain an annual audit of each fund and deliver them to each investor; and
    • performance fees can only be charged to qualified clients.

Firms may register with the SEC once they reach $100M in AUM. Therefore, the firm may rely on the California private adviser exemption and then, absent an exemption from SEC registration, register with the SEC at that point. Section 203(m) of the Adviser’s Act of 1940 (as amended by Dodd-Frank) provides such an exemption from such registration if the firm only manages private funds and has less than $150M AUM (the firm would be an exempt reporting adviser and would have to file the abbreviated Form ADV with the SEC).

Funds with Non-Accredited Investors

The proposed rule does have a grandfathering provision that will make the California private adviser exemption available to a firm that currently manages any Section 3(c)(1) fund that has non-accredited investors if the following requirements are met:

  • the fund existed prior to the effective date of the California private adviser exemption;
  • as of the effective date of the Private Adviser Exemption, the fund no longer accepts accredited investors;
  • the firm provides certain written disclosures about the services it provides, its duties, and other material information; and
  • as of the effective date of the Private Adviser Exemption, the firm delivers audited financials to the investors.

Currently, the proposed rule does not have an anticipated effective date. If approved, managers of funds with non-accredited investors may still qualify for the Private Adviser Exemption.


The California private adviser exemption will change the entire registration regime in California. Firms that solely manage qualifying funds and meet the requirements discussed above will not have to register with the DOC and those that are currently registered may withdraw their registration. So, hedge fund managers in California with under $100M in AUM generally will not be registered with any regulatory agency. Do keep in mind that if a manager manages even a single separate account, in addition to the qualifying funds, it will not be eligible for the private adviser exemption.


Cole-Frieman & Mallon LLP provides investment adviser registration and compliance services to hedge fund managers.  Bart Mallon can be reached directly at 415-868-5345.

Attracting ERISA Assets Event

Below is information on a 100 Women in Hedge Funds event in San Francisco later this month.


Underfunded and Over-solicited: How to Stand Apart to Attract ERISA Plan Assets

January 31, 2012 at 6 PM

San Francisco CA

Due to recent underperformance, many corporate and government pension fund managers actively seek to increase investment returns in order to pay underfunded benefits promised to retirees. According to the 2011 US Department of Labor, GAO Report, pension plan investment in hedge funds is on the rise. In 2010, 60% of large plans had made investments in hedge funds, compared to 11% in 2001. Moreover, these managers had allocated more than 5% of plan assets to hedge funds, on average.With 40% of large plans (>$5 billion) and 22% of midsize plans ($250 million to $500 million) already invested in hedge funds and private equity, the opportunities to attract even more pension plan assets could not be any better.Our panel will share insights and discuss:

* How to market your fund to find long-term partnerships and significant capital

* How to address pension plan managements’ concerns regarding the risks of hedge fund investments

* The legal, due diligence and operational challenges of managing pension plan assets


  • David Mattheson, Moderator, Drinker Biddle & Reath LLP
  • Stephen Wilkes, Drinker Biddle & Reath LLP
  • Deborah E. Gallegos, Strategic Investment Solutions
  • Ray Iler, Deloitte

Event Details

  • Date: January 31, 2012
  • Time: 5 PM Registration.  We will begin promptly at 6 PM; please arrive early. Since it is disruptive to everyone when latecomers enter the session, those arriving after an education session has begun will only be admitted at the discretion of 100WHF and the host. Please note the start time on this invite and plan to arrive early.
  • Networking and cocktails prior to session.
  • Hosts: Deloitte and Drinker Biddle
  • Location: 555 Mission Street, San Francisco, CA 94105
  • RSVP: RSVP Now

If you have any questions about this event, please contact [email protected]


Admission is free, but there is a $25 charge if you register and do not attend, even if you cancel in advance. No-show proceeds will be donated to the 2012 beneficiary of 100WHF’s US philanthropic initiatives.

If you have no-show fees in arrears, the system cannot register you for an event. You can view and pay for any outstanding no-show fees online from your Member Profile

Space is limited. No walk-ins will be permitted.


David Mattheson, Partner, Drinker Biddle & Reath LLP

David M. Matteson is a partner and member of the nationally ranked Investment Management Practice Group.

For more than 28 years, David has concentrated his practice in the area of private investment management, with an emphasis on derivatives. He has represented hedge funds, commodity pool operators (CPOs), commodity trading advisors (CTAs), investment advisers and offshore and onshore funds.

David has advised clients as to the various structures and strategies with respect to the formation of funds and their management companies, SEC and CFTC regulatory issues, offering memoranda, marketing materials and appropriate investment agreements and terms of specific investment funds. Prior to joining the firm, David was general counsel of a hedge fund manager. He was recently named one of the Best Lawyers in America® for his Hedge Fund/Investment Management practice.

Stephen Wilkes, Associate, Drinker Biddle & Reath LLP

Steve Wilkes is an attorney in the firm’s ERISA Financial Services Team. He has gained broad experience representing clients on matters involving employee benefits, taxation and securities law, from both a regulatory and transactional perspective, for over 30 years. Steve’s practice today focuses mostly on investment management issues faced by the law firm’s clients, where ERISA and related securities, corporate, or banking laws intersect with regard to the creation and delivery of financial products and services.

Clients include investment advisers, broker dealers, banks, registered funds and private funds.

Deborah E. Gallegos, Director of Manager Research, Strategic Investment Solutions

Deborah E. Gallegos, Director of Manager Research for Strategic Investment Solutions (SIS), has more than 20 years of experience in public fund administration, investment management, and plan sponsor consulting. She is responsible for the overall direction and supervision of SIS’s manager research effort, and oversees the conduct of manager search and selection projects in the public markets asset classes including hedge funds. Deborah served as New York City’s Chief Investment Officer, where she supervised the development of the overall investment policies, standards and guidelines for the City’s five pension systems totaling $90 billion in assets.

Previously, Deborah served as Deputy State Investment Officer for the New Mexico State Investment Council. She was a Vice President at JP Morgan Fleming Asset Management, where she worked for six years for its Global Emerging Markets Fund, and also worked for Morgan Stanley & Co. in its equity research group.

Deborah serves as the Treasurer for the Stern Grove Festival Foundation and sits on the investment committee for the City College of San Francisco.

Ray Iler, Partner, Deloitte

Ray J. Iler is Deloitte’s West Coast hedge fund leader responsible for hedge fund industry matters involving audit, tax, financial advisory and consulting. In addition to serving hedge fund clients, Mr. Iler provides professional services to private equity clients. Prior to joining Deloitte, Mr. Iler served as Chief Financial Officer and Corporate Secretary for Quadrise Canada Corporation, an oil and gas technology company. From 2001 to 2006, he founded the tax practice and served as Audit Partner for Deloitte’s Grand Cayman practice, where he advised clients on investment fund structuring, due diligence procedures, service provider selection and incentive fee structuring. From 2000 to 2001, Mr. Iler was the Manager for Bank of Bermuda Cayman Limited’s corporate banking team responsible for investment management, custody and brokerage services for investment funds and high net worth individuals. From 1998 to 2000, he was the Capital Markets Group Head for UBS (Cayman Island) Ltd., where he managed back office operations for UBS sponsored investment funds and client investment funds, as well as served as director for those funds. He began his career as an auditor with Deloitte in Canada in 1991 and moved to Deloitte’s Cayman practice in 1994.

Mr. Iler received a Bachelor of Commerce with distinction in finance and accounting from University of Alberta. He is a CFA charterholder and past President of the CFA Society of the Cayman Islands, a former Director, Treasurer and founding member of the Alternative Investment Management Association’s Cayman Chapter, a Canadian Chartered Accountant and a Certified Public Accountant.

About Deloitte

Challenging times call for new ideas and the evolving environment will require a more sophisticated and robust infrastructure to operate profitably. Whether it is product structuring, scenario planning for the new regulatory era, enhancing risk management processes, or adopting new technology and operating models to meet investor demands, Deloitte’s deep bench of professionals is well-positioned to assist the hedge fund industry. The breadth of our practice and our commitment to the industry means that you can count on Deloitte to deliver results that make a difference.

About Drinker Biddle

Drinker Biddle & Reath LLP, with 650 lawyers in 11 offices nationwide, provides clients with unparalleled service in matters ranging from billion-dollar deals to complex class actions, across a broad spectrum of industries. Our priorities are knowing our clients’ business and providing the value they need so that we can be an integral part of their success. Clients choose us for our sophisticated yet efficient approach to handling their most important business transactions, litigation and government affairs efforts. For more information on how we have been innovating for clients for more than 160 years, please visit

About 100 Women in Hedge Funds (

100 Women in Hedge Funds is a global, practitioner-driven non-profit organization serving over 10,000 alternative investment management investors and professionals through educational, professional leverage and philanthropic initiatives. Formed in 2001, 100 Women in Hedge Funds has hosted more than 300 events globally, connected more than 250 senior women through Peer Advisory Groups and raised over $25 million for philanthropic causes in the areas of women’s and family health, education and mentoring.

Give Back

100 Women in Hedge Funds provides a ‘Give Back’ program that enables members to match their resources (time, access, financial) to projects that will help us expand our successful initiatives. Visit 100WHF Give Back today and tell us how you can help.

100WHF Connect!

Get Connected today! Visit Connect! for details and to sign up.

100WHF Access Fee

Have you paid your access fee? If not please go to 100WHF Member Payment. We appreciate your continued support!


Cole-Frieman & Mallon LLP provides legal services for hedge fund managers and other groups within the investment management industry. Bart Mallon can be reached directly at 415-868-5345.

Hedge Fund Events January 2012

The following are various hedge fund events happening this month. Please contact us if you would like us to add your event to this list.


January 10 – 11

January 10 – 12

January 17

January 17

January 17

January 17

January 18 – 20

January 18 – 20

January 19

January 20

January 23 – 24

January 23 – 25

January 24

January 25 – 26

January 25

January 26

January 29 – 31

January 29

January 31

January 31

January 31


Cole-Frieman & Mallon LLP provides legal services for hedge fund managers and other groups within the investment management industry. Bart Mallon can be reached directly at 415-868-5345.