Monthly Archives: April 2012

More on JOBS Act for Hedge Fund Managers

Below is the transcript of an interview I gave to Markets Reform Wiki. The discussion below is about how the recently enacted JOBS Act will affect the hedge fund industry. There has been an overwhelming amount of attention paid to this bill because it will, in certain ways, fundamentally change the way some managers (especially small and emerging) market their hedge fund going forward. We have also published other pieces about this issue and there will likely be a lot of discussion about hedge fund marketing related to the JOBS Act in the future.

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Hedge Fund Marketing and the JOBS Act

Five Minutes with Bart Mallon, Cole-Frieman, Mallon & Hunt LLP

On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act (“JOBS Act”). Inserted into the Act were provisions on hedge fund marketing and accredited investor restrictions. John Lothian News Editor-at-Large Doug Ashburn spoke with Bart Mallon of Cole-Frieman, Mallon & Hunt LLP about the JOBS Act provisions, what they entail and how it will affect the hedge fund community.

Q: On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act (“JOBS Act”). Inserted into the Act were provisions on hedge fund marketing and accredited investor restrictions. What exactly do the provisions entail?

A: There is not actually any change in marketing provisions per se. What happened is the JOBS Act repealed earlier provisions in the securities laws which did not allow managers to have general solicitations with respect to their offerings. This essentially meant that managers could not solicit by advertising to the public through these private offerings and so managers really had to be careful when trying to grow the assets of their fund. One of the important things to note with respect to the provisions of the JOBS Act is that they can only market more freely if all of the investors of the fund are accredited investors. If they have non-accredited investors coming into the fund, then they cannot use these more liberal advertising means in order to solicit investors.

Q: Does this affect all types of fund structures?

A: For a 3(c)(1) fund structure, the accredited investor limit does not change. These managers are still limited to 99 individual investors. For 3(c)(7) funds, previously the limit was 499 investors. Now, that can be bumped up to 1999 investors. For 3(c)(7) funds, though, all investors must be qualified purchasers, which is actually a higher threshold than that of accredited investors.

Q: What do these marketing rules have to do with the JOBS Act, and why are they a part of it?

A: You have a couple things going on here. As people have been pointing out for a number of years, most of these securities laws were written in the 1930s, with the last one in 1940. The general nature of the industry has changed over the years; the JOBS Act is a reaction to some of the problems with these laws. Technological advances, and the ability of the internet to be a means of connecting with people in a way to market to potential investors – securities laws just do not address those issues. The JOBS Act was trying to find a way to balance investor protection of the securities laws with the ability for managers to go out and communicate and have a sort of certainty with respect to their activities on the internet.

Q: How will this change the way funds structure communication, such as on their web sites?

A: There is going to be a wide range of ways managers will be allowed to advertise. You will see more information available on their web sites and on hedge fund databases. You are also more likely to see hedge funds marketed in publications such as the Wall Street Journal or New York Times. There has also been talk that big fund complexes may have public advertising in sporting venues and such. I don’t know if it will come to that, but we are definitely going to see more fund managers trying to get out in front of the investing public and getting their name out there more. It will be interesting to see the avenues with which managers will use.

Q: Critics have suggested that this will be an invitation to some of the less scrupulous operators to come out of the woodwork to take advantage of the new rules. Do you see a problem with that?

A: Certainly, this is going to make the job of securities regulators much more difficult. Right now, with the restrictions, you don’t have a lot of managers out there touting performance and those sorts of things. Once you open up the floodgates and everyone starts doing it, it will be a lot harder for the SEC and for the state regulators to keep on top of what all these managers are showing. From a regulatory standpoint, in asking these agencies to enforce these securities laws and protect the investing public amid this deluge of advertising, I think becomes a tough task for the regulators. Savvy marketing people who might not have the best of intentions with respect to customer protections will have an easier time meeting population targets. That is one of the things Congress had to weigh when creating this law – investor protection versus capital formation and spurring the economy.

Q: The SEC has been given a timetable for the creation of a framework for these new rules. What do you expect to see in the SEC rulemaking?

A: I imagine we will see a lot of rulemaking on recordkeeping, and also on being able to back up any statements made in any advertising materials. It is clear that managers are going to need to make sure their investors are accredited investors, so I think there could be more of an onus on managers to do more fact-checking with respect to their investors.

But it really depends on how aggressive the SEC wants to be with respect to overseeing solicitations. The SEC is already an underfunded agency, so if they create more onerous rules for themselves to implement and oversee, they will be taking away from themselves internally. They have their own political balance they need to strike between promulgating rules that they can actually enforce, versus investor protection.

Bart Mallon is a partner and co-founder of Cole-Frieman Mallon & Hunt LLP, a San-Francisco-based law firm specializing in hedge fund and alternative investment legal services. His areas of specialization include setting up offshore hedge funds and separately managed structured accounts, and registration issues. Mallon is also the author of the Hedge Fund Law blog.

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Cole-Frieman Mallon & Hunt provide legal advice to hedge fund managers with respect to all aspects of their business including marketing under the new JOBS Act provisions. Bart Mallon can be reached directly at 415-868-5345.

Investment Adviser Oversight Act of 2012

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Bauchus-McCarthy Bill to Authorize IA SRO

House Financial Services Committee Chairman Spencer Bachus (R-LA) and Rep. Carolyn McCarthy (D-NY) today introduced the payday loans

Investment-Adviser-Oversight-Act-of-2012.pdf”>Investment Adviser Oversight Act of 2012. The bill would allow for the creation of a self regulatory organization (SRO) for investment advisers, similar to FINRA for broker-dealers. Below we have reprinted the press release from the House Financial Services Committee website which can also be found here.

In addition to the press release, we will be posting other thoughts related to this story in the coming days and weeks. Links to this story will appear below along with other articles we have already posted on this topic:

GAO Report on SRO for Private Fund Advisers (September 2011)

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Chairman Bachus and Rep. McCarthy Propose Bipartisan Bill for More Effective Oversight of Investment Advisers

Washington, Apr 25 –

Financial Services Committee Chairman Spencer Bachus and Rep. Carolyn McCarthy, a member of the Committee, introduced bipartisan legislation today to create more efficient and effective oversight of the retail investment advisory industry.

Chairman Bachus and Rep. McCarthy introduced their proposal in response to a Securities and Exchange Commission (SEC) study that revealed the agency lacks resources to adequately examine the nation’s nearly 12,000 registered advisers. As part of its study, which was a requirement of the Dodd-Frank Act, the SEC recommended a self-regulatory organization as one option for Congress to consider as it looks for ways to help the agency monitor the industry.

The Bachus-McCarthy bill would authorize one or more self-regulatory organizations (SROs) for investment advisers funded by membership fees.

Investment advisers and broker-dealers often provide indistinguishable services to retail customers, yet only 8 percent of investment advisers were examined by the SEC in 2011 compared to 58 percent of broker-dealers.

“The average SEC-registered investment adviser can expect to be examined less than once every 11 years. That lack of oversight, particularly in the aftermath of the Madoff scandal, is unacceptable,” said Chairman Bachus. “Bad actors will naturally flow to the place where they are least likely to be examined. Therefore, it is essential that we augment and supplement the SEC’s oversight to dramatically increase the examination rate for investment advisers with retail customers.

“Customers may not understand the different titles that investment professionals use but they do believe that ‘someone’ is looking out for them and their investments. For broker-dealers that is true, but for investment advisers, it is all too often not true and that must change,” concluded Chairman Bachus.

The legislation would amend the Investment Advisers Act of 1940 to provide for the creation of National Investment Adviser Associations (NIAAs), registered with and overseen by the SEC. Investment advisers that conduct business with retail customers would have to become members of a registered NIAA. The SEC would have the authority to approve the registration of any NIAA.

The legislation permits the SEC to suspend or revoke an NIAA’s registration, or censure or impose limits on an NIAA’s activities and operations, if the SEC finds that the NIAA has violated the Advisers Act, SEC rules or its own rules. The SEC would also be able to suspend or revoke an NIAA’s registration if the association has failed to enforce compliance with any provision by an NIAA member firm or associated person.

The proposal requires the SEC to determine whether an NIAA has the capacity to carry out the purposes of the Advisers Act and to enforce compliance by its members and their employees with the Advisers Act, the SEC’s rules, and the NIAA’s rules before the association can register as an NIAA.

The proposal also recognizes the authority given to the states over small investment advisers in Title IV of the Dodd-Frank Act by preserving state authority over investment advisers with fewer than $100 million in assets under management, so long as the state conducts periodic on-site examinations.

In addition, the SEC must determine that the NIAA’s rules:

are designed to prevent fraud and protect investors;
are consistent with the Advisers Act and fiduciary duties under the Act and state law;
do not impose any burden on advisers that is not in the public interest or for investor protection;
provide for periodic examinations of members and their related persons, and for coordination of those examinations with the SEC and state securities authorities;
assure a fair representation of the public interest and the investment adviser industry in its selection of directors and administration of its affairs, and provide that a majority of its directors do not come from the securities industry; and
provide for equitable allocation of dues and fees and establish appropriate disciplinary procedures for members and their associated persons that violate the Advisers Act, SEC rules or NIAA rules.

Click here to view a copy of the bill.

Key Leaders Agree an SRO Will Result in More Effective Oversight and Stronger Protection for Investors

SEC Chairman Mary Schapiro: “I think self-regulatory organizations, with close oversight from the federal government – can bring tremendous value to the protection of investors. So, it’s an area we are willing to explore because even though our budget is growing, we’re likely to never have all the resources we need to do everything that we’d like to do and the extent to which we can leverage SROs, accounting firms, whistleblowers, I am game to do that because I think it will allow us to do a better job.”

Testimony before the Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee, July 14, 2009

Former SEC Commissioner Roberta Karmel: “After the financial meltdown of 2008 and the Madoff bankruptcy, it would seem the height of political irresponsibility to allow the current inadequacies in the SEC’s examination capabilities to continue.

New York Law Journal, June 16, 2011

Consumer Federation of America’s Director of Investor Protection Barbara Roper: “Having spent the better part of two decades arguing for various approaches to increase SEC resources for investment adviser oversight with nothing to show for our efforts, we have been forced to reassess our opposition to the SRO approach. Specifically, we have concluded that a properly structured SRO proposal would be a significant improvement over the status quo.”

Testimony before the Senate Banking, Housing and Urban Affairs Committee, July 12, 2011

SEC Chairman Mary Schapiro: “…we have to find a way to have better oversight of intermediaries who have such enormous interplay with retail investors, and an SRO is one of the vehicles to do that.”

Testimony before the House Financial Services Committee, September 15, 2011

Securities Industry and Financial Markets Association Chairman John Taft: “In the case of broker-dealers and independent investment advisers who provide personalized investment advice to retail customers, we believe comparable examination, oversight, and enforcement is most practically and readily achievable through use of an SRO.”

Testimony before the Subcommittee on Capital Markets and Government Sponsored Enterprises, September 13, 2011

SEC Commissioner Elisse Walter: “We also have precedent, spanning more than seven decades, that SROs can significantly enhance the Commission’s examination and enforcement resources relating to its regulated entities … We need to address this issue now. It must not be relegated to another day—as has happened in the past. For far too long, in the investment advisory area, the Commission has been unable to perform its responsibilities adequately to fulfill its mission as the investor’s advocate, and investment advisory clients have not been adequately protected. This must change.”

Statement on Study Enhancing Investment Adviser Examinations, January 2011

House Budget Resolution FY 2012, Report 112-58: “During a time when trimming the deficit is imperative, the SEC should create headroom in its budget by streamlining and making more efficient its operations and resources; defraying taxpayer expenses by designating self-regulatory organizations (subject to SEC oversight) to perform needed examinations of investment advisors; and enhancing collaboration with other agencies, such as the Commodity Futures Trading Commission, to reduce duplication, waste, and overlap in supervision.”

Department of the Treasury: “Treasury notes the rapid and continued convergence of the services provided by broker-dealers and investment advisers and the resulting regulatory confusion due to a statutory regime reflecting the brokerage and investment advisory industries of decades ago. An objective of this report is to identify regulatory coverage gaps and inefficiencies. This is one such situation in which the U.S. regulatory system has failed to adjust to market developments, leading to investor confusion. Accordingly, Treasury recommends statutory changes to harmonize the regulation and oversight of broker-dealers and investment advisers offering similar services to retail investors. In that vein, Treasury also believes that self-regulation of the investment advisory industry should enhance investor protection and be more cost-effective than direct SEC regulation. Thus, in effectuating this statutory harmonization, Treasury recommends that investment advisers be subject to a self-regulatory regime similar to that of broker-dealers.”

Blueprint for a Modernized Financial Regulatory Structure, March 2008

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Cole-Frieman Mallon & Hunt LLP provides legal and investment adviser registration and compliance services to the hedge fund community. Bart Mallon can be reached directly at 415-86-5345.

JOBS Act Opportunities for Hedge Fund Managers

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The JOBS Act has already sparked a number of interesting questions from hedge fund managers who want to begin more aggressive advertising campains under the new laws. We have generally been cautioning managers on starting any campaign until after the SEC has promulgated regulations. However, we do think that managers may want to start thinking about how they may implement a more robust marketing program as part of their overall capital raising plan. The article below, contributed by Meredith Jones and Joseph Pacello of Rothstein Kass, provides some insights into the opportunities available for fund managers post JOBS Act.

[HFLB Note: all links in the article below were not links in the original. The links in the article below are to other posts on this website and are not necessarily endorsed by the writers of the article.]

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JOBS Act Opens New Window of Opportunity for Hedge Fund Marketing

The Jumpstart Our Business Startups (JOBS) Act, signed into law by President Obama on April 5, offers hedge funds and other private investment vehicles more latitude for their marketing efforts. In this article, Meredith Jones and Joseph Pacello discuss some of the implications of the bill and issues that need to be on the agenda of savvy fund managers.

Since the launch of the first hedge funds in the 1940s, hedge funds have been subject to Securities and Exchange Commission (SEC) prohibitions on advertising and general solicitation. While “namebrand” funds with widespread name recognition and extensive investor relationships have generally not been impacted by these restrictions, the inability to solicit capital from accredited investors who were not previously known significantly curtailed the marketing and capital raising efforts of smaller funds. Over the last three years, in the wake of the global economic contraction of 2008, managers with less than $1 billion particularly chafed under these restrictions, as they chased scarce investors, often with fewer resources.

The JOBS Act potentially removes those prohibitions, pending formal rulemaking by the SEC, who will have final say on how the JOBS Act is implemented. Under the new rules, the SEC would eliminate the prohibition on general solicitation as it relates to hedge funds, provided that the only purchasers are accredited investors. As a result, accredited investors will no longer have to be previously known to the fund. In addition, the Act theoretically removes the prohibition on general advertising, giving funds greater opportunity to and options for communication with potential investors.

While managers with more than $1 billion under management appear to be taking the rule change in stride, for funds with less than $1 billion under management, this new freedom to communicate with investors presents a wealth of potential new capital raising avenues. Fully leveraging this opportunity, however, will require funds to become more sophisticated and strategic in their marketing efforts. Those that fail to do so risk being alsorans in what is sure to be a more competitive period ahead.

Frankly, the previous regulations made “hedge fund marketing” almost a contradiction in terms. Much of the capital raising success of a fund was predicated on the fund’s existing relationships, or their ability to develop new contacts through limited resources, such as hedge fund databases, conferences and networking events. While relationships—not to mention performance—will always be important, the JOBS Act should result in a greater emphasis on marketing strategy and execution in the capital-raising process.

The fact that all funds will be able to solicit all accredited investors means that more investors will be hearing from more funds. The increased volume of conversations means that funds will have to “rise above the noise” to succeed in capital raising. Firms that plan and communicate effectively will therefore have a strategic advantage over those who do not.

The implementation of changes to the existing solicitation and advertising restrictions will not occur before early July, the deadline by which the SEC must complete rulemaking for this section of the JOBS Act. To be clear, we have yet to see how the SEC will interpret this change. For example, fund-sponsored mailings or events could be permitted, but not without extensive records of investor qualification documents being collected in advance. Press releases could be more common, but there could be limitations on what can be discussed. As a result, in this interim period it is probably wise not to be overly aggressive with new marketing avenues or advertisements. However, this doesn’t mean that funds should sit back and wait for the SEC’s final rule to begin preparations.

Because the capital raising environment was already becoming more competitive, particularly at the smaller and emerging ends of the alternative investment spectrum, funds should use the next 90 days to carefully review the quality of their marketing materials. In particular, funds should examine their marketing through the eyes of a potential investor and ask:

• Does the fund know its competition and can it differentiate itself with a clearly defined value proposition? This is particularly important if the fund operates in a highly saturated area, such as long-short equity, macro, futures trading and private equity.

• Are the fund’s marketing materials clear and concise? It is a common mistake to assume length equals conviction. Indeed, most investors offer approximately one hour for an initial meeting and length can spell repetition of some facts, while having to omit others due to time constraints. A clearly defined value proposition often takes fewer words, not more.

• Is there a well defined “story?” Although tempting, particularly for funds where the manager pulls double-duty as a marketer, it is not always advisable to assume the strategy and opportunity speaks for itself. It is vital that the documents and pitch communicate not just what you do, but who you are as a manager and a firm, including how you view risk and run a business.

• Do the marketing materials have a sophisticated look and feel? While the content of the materials does the heavy lifting, their look and feel set the tone. Does your firm appear to be institutional? Are the slides dense or wellpaced? Do you have a consistent brand? Aim for crisp and clean layouts that help the reader through the material.

• How strong is the fund’s marketing capability? Few hedge funds have the luxury of a full-time dedicated marketing (as opposed to fund-raising) professional on staff. Firms should consider bringing in an experienced outside consultant who can make high-value, targeted improvements.

In this evaluation process, it is also important to recognize that things like pitch books are more than mere props—they structure the conversation a fund has with its potential investors. A poor pitch book means that important points are likely to be skipped over (or blunted from repetition); a good pitch book amplifies the effectiveness of the presenters.

When revising communications materials, remember that anti-fraud regulations remain in place; a fund needs to be scrupulous in its representations and consistent in its themes. For some in the marketing world, “gilding the lily” is a common practice, however in the investment arena, it is one to be avoided. Explanatory notes, review by the firm’s legal counsel and truth in advertising will still be required under the new rules. Also note that as more materials are generated and sent to a wider audience, the ability to track communication will become more important as well. If the SEC audits your firm post JOBS Act, you will need to be able to present full documentation of your marketing efforts.

Regardless of the final interpretation of the JOBS Act by the SEC, funds also need to develop a marketing plan to guide their outreach to potential investors. Again, the competition for assets has gotten more, not less, fierce over the last three years. Putting a strategic marketing plan in place will curtail the impulse to cast the widest possible net and pursue every available audience. Because most funds have limited marketing resources, it is essential to allocate those resources strategically. This requires looking at three factors:

1. Capacity: Marketing efforts need to be scaled to how much capital needs to be raised. A stellar marketing campaign that results in turning away a significant number of investors represents wasted resources. A fund that is making steady progress toward being fully subscribed may in fact be able to meet its goals by continuing its current network-based outreach.

2. Manpower: Pursuing investors takes time, and for many firms, that means time away from other tasks, including investment management. Funds need to determine, given their capacity, which audiences are most likely to result in the largest return on their marketing investment and prioritize accordingly.

3. Money: A firm’s marketing spend needs to be allocated so that it is directed toward strategically valuable efforts and does not cannibalize other functions.

Certainly, the potential benefit of the JOBS Act is that funds, particularly those with less than $1 billion under management, will be able to leverage their capital raising efforts. Blogs, websites, email campaigns, advertisements, press releases and other marketing activities may allow funds to extend their reach, effectively providing a type of “air cover” for their one-on-one capital raising efforts. However, any decisions to engage in these activities should be evaluated in light of the restrictions above.

In conjunction with a review of marketing, funds should also examine their investor relations bandwidth. For 3(c)7 funds directed toward qualified purchasers, the JOBS Act raises the maximum number of holders of record from 499 to 1,999. This means that funds that are near their investor maximum could potentially make the decision to allow more investors (capacity of the strategy permitting), or consolidate existing 3(c)7 funds. It is unlikely that these changes will have a tremendous impact on all but the largest fund complexes at the present time. However, if a manager does decide to increase his investor headcount, then effective and proactive investor relations will undoubtedly become a greater concern, which we will address in a future article.

Rothstein Kass will be monitoring the SEC rulemaking in connection with the JOBS Act and its impact on private funds.

By Meredith Jones, Director and Joseph A. Pacello, CPA, JD, Principal

For more information on this article and for services offered by Rothstein Kass, please contact Meredith Jones, Director at 972.581.7066 or via e-mail at [email protected].

Meredith Jones, Director

Meredith Jones is a director at Rothstein Kass responsible for generating research and content on the alternative investment industry by and on behalf of the firm. She also provides business advisory services to the firm’s clients. Meredith has more than 14 years of experience in the alternative investment industry, with extensive expertise in research, writing, consulting, marketing, business development, due diligence, index construction and asset allocation. Her research has been published in a number of books and journals and in the international press.

Prior to joining Rothstein Kass, Meredith was a director in the Barclays Capital Inc. Strategic Consulting Group, where she was responsible for producing thought leadership content on a variety of manager and investor focused topics, as well as leading consulting projects for BarCap clients. She previously served as a managing director at PerTrac Financial Solutions (PFS), a leading provider of investment analytics. At PFS, Meredith was responsible for research, marketing, investment data, and was a fixture on the international hedge fund conference circuit.

Meredith began her career in alternative investments at Van Hedge Fund Advisors International in 1998, where she became the senior vice president and director of research. Meredith led the team responsible for hedge fund due diligence, manager selection, portfolio construction, hedge fund data, index creation and industry research while at VAN.

Over the past 14 years, Meredith has presented her original research and insights to industry participants around the world and has had her findings published in books, journals, industry publications and major media outlets, including The Economist, The Wall Street Journal, The Journal of Investing, Alternative Investment Quarterly and the Financial Times.

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Cole-Frieman Mallon & Hunt LLP is a law firm to the investment management industry and runs the Hedge Fund Law Blog. Bart Mallon can be reached directly at 415-868-5345.

Two Roads Mutual Fund Launch Announcement

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Cole-Frieman Mallon & Hunt Proud to Partner with Gemini on Two Roads

As a boutique law firm with a ’40 Act and Alternative Mutual Funds practice, we have been able to provide a wide range of services to managers in the registered fund space. Today we are announcing even more options for managers who want to utilize a shared trust platform through our partnership with Gemini Fund Services. Below is a press release announcing the partnership and the launch.

If you have any questions about the legal considerations involved with launching a mutual fund, please contact us or call Aisha Hunt directly at 415-762-2854.

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GEMINI FUND SERVICES AND COLE-FRIEMAN MALLON & HUNT PARTNER TO LAUNCH TWO ROADS SHARED TRUST

Gemini and Cole-Frieman Combine Efforts to Help Advisers Take Advantage of Fertile Landscape for Alternative Mutual Funds

HAUPPAUGE, N.Y. and SAN FRANCISCO – April 17, 2012 – Gemini Fund Services, LLC (Gemini), an engaged partner to independent advisers as a provider of comprehensive, pooled investment solutions, and Cole-Frieman Mallon & Hunt LLP (Cole-Frieman), a premier boutique investment management law firm, providing top-tier, responsive and cost-effective legal solutions for financial services matters, have partnered to launch Two Roads Shared Trust (Two Roads), a shared mutual fund trust, which will be overseen by an independent board of trustees.

Two Roads is tailored to advisers, such as hedge fund managers, who wish to start alternative mutual funds. Funds will be able to join Two Roads in the third quarter of 2012.

“The mutual fund industry continues to embrace alternative investment strategies during this volatile market, and we look forward to working with Cole-Frieman to help emerging advisers reap the benefits of implementing their own alternative strategies,” said Andrew Rogers, President of Gemini. “We are confident that we have found the right partner for executing this venture because Cole-Frieman has not only established an impressive footprint in the hedge fund sector, but its presence on the West Coast will help Gemini expand the geographic scope of our pooled investment services.”

Robert Frost’s poem “The Road Not Taken” inspired the new trust’s name. “While the alternative mutual fund path may be ‘the one less traveled by,’ as Robert Frost wrote, it may reap rewards for those advisers who take it,” said Mr. Rogers.

Two Roads, like Gemini’s three Northern Lights Fund Trust pooled investment vehicles, will be composed of separately managed, independent funds. By joining Two Roads, funds receive fund sales, board and regulatory compliance oversight, operational efficiency and economies of scale that they would not otherwise be able to obtain by themselves. Two Roads membership also entitles funds to introductions to broker/dealers and assistance with their marketing and distribution plans.

“We are very excited to work with Gemini Fund Services to launch Two Roads Shared Trust,” said Aisha Hunt, a Partner who heads the Alternative Mutual Fund Practice at Cole-Frieman. “Very few mutual fund service providers are experienced in servicing hedge fund managers. Two Roads will leverage this combined expertise to provide hedge fund managers with a cost-effective solution for launching mutual funds that employ hedge fund strategies.”

“Most hedge fund managers do not realize that mutual fund shared trusts have significantly lowered the costs and barriers of entry to launch a mutual fund,” added Karl Cole-Frieman, a Partner at Cole-Frieman. “The convergence of lower barriers of entry and historical demand for alternative mutual funds has created an unprecedented opportunity for hedge fund managers to raise assets through a shared trust.”

For media inquiries, please contact Dana Taormina at 973-850-7305 or [email protected].

About Gemini Fund Services, LLC

Gemini Fund Services, LLC (www.geminifund.com) provides comprehensive, pooled investment solutions as an engaged partner to independent advisers. Gemini serves as a strategic partner and resource to advisers that want to bring their own, unique investment vehicles to market, including mutual funds, hedge funds, and alternative investments such as collective investment trusts. As a full-service firm, Gemini provides the administration, accounting, and technology that advisers need in order to launch and market successful products. With over 25 years of experience creating and servicing funds, Gemini brings years of industry knowledge and insight to help advisers achieve the vision of their product and deliver the most extensive range of turnkey solutions to clients.

About Cole-Frieman Mallon & Hunt LLP

Cole-Frieman Mallon & Hunt 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, the firm has an international practice that services emerging investment managers, as well as established investment management firms. The firm provides a full suite of legal services to the investment management community, including: investment adviser registration, hedge fund and private equity fund formation, ’40 Act fund registration (traditional and alternative mutual funds, closed-end funds and ETFs), counterparty documentation, SEC, CFTC, NFA and FINRA matters, and routine business matters.

JOBS Act Signed Into Law

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Allows Hedge Funds to Openly Solicit Investors

President Obama has signed into law the Jumpstart Our Business Startups Act (“JOBS Act”), a law which eases some of the private investment fund industry’s long-standing regulatory burdens.

There are two parts of the JOBS Act which in particular stand out for the hedge fund industry: (1) private investment fund managers including hedge fund managers may now make general solicitations and advertise their fund in order to attract investors, as long as the funds only have accredited investors; and (2) private funds and hedge funds may now have up to 1,999 accredited investors, or 500 non-accredited investors, without having to register with the SEC under the 1934 Act. [For background information on this issue, please see section “500 or Fewer Investors” on our post about Section 3(c)(7) hedge funds.]

During the next 90 days the SEC will be promulgating regulations with respect to the changes in the securities laws.

Ban Lifted on General Solicitation and Advertising

Previously Rule 506 of Regulation D prevented private fundsfrom advertising publicly or soliciting the public for investment. This rule raised the specter of liability in numerous contexts. For example, private fund managers and employees could face serious consequences – including risking the fund’s SEC filing exemption (different from IA registration exemption) – for discussing their investment strategy with certain potential clients, or for putting their contact information on a fund’s publicly-accessible website. The JOBS Act changes this statutory scheme, allowing private funds to advertise publicly and to solicit the public for investment. It is not yet clear precisely what forms of advertising and solicitation will be permitted under the new rule. The SEC still has 90 days from the date of the signing of the JOBS Act to issue final regulations which will likely include more details on allowable advertisements and solicitation.

Increased Number of Accredited Investors

Prior to the JOBS Act, the Securities Exchange Act of 1934 required private funds to register with the SEC if they had more than 499 accredited investors (see 3(c)(7) link above). Under the new law, a private fund may have as many as 1,999 accredited investors without triggering that registration requirement. Increasing the number of permitted investors may allow private funds to raise more capital. [Note: the new law also creates a new source of financing called “crowdfunding.” A detailed analysis of this topic is beyond the scope of this blog post, but it should be noted that purchasers in a crowdfunding are not counted toward the 1,999 investor limit. Also not counted are employees who receive securities from a fund pursuant to an executive compensation plan.]

Other Items

The new rules do not apply to commodity pools which are subject to other regulatory oversight from the CFTC because of the Commodities Exchange Act. In general many commodity pool operators are going through the CFTC CPO registration process because of separate CFTC rulemaking which we detailed in a previous post.

Conclusion

While many groups including hedge fund managers are applauding this shift in the law, the SEC is likely to craft regulations which seek to limit the full extent of the potential general solicitations. Fund managers should remember that while general solicitations may be allowable in the future, managers may still be subject to other regulations under the Investment Advisers Act, especially after the Dodd-Frank requirement for hedge funds to register with the SEC. Specifically, fund managers who are SEC registered IAs cannot use testimonials and there are a number of requirements for hedge fund performance reporting which will need to be followed. While it is clear that private fund managers will have more flexibility with respect

to advertising than before the JOBS Act was passed, managers will need to be vigilant with their compliance programs if they decide to adopt more agressive public advertising campaigns.

Many more updates on this topic are expected.

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Cole-Frieman Mallon & Hunt LLP provides regulatory and legal services to the investment management community. Bart Mallon’s practice focuses on both hedge fund manages as well as the managed futures industry. Please contact us or you can reach Bart Mallon directly at 415-868-5345.

SF Hedge Fund Events Week of April 16

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This is a big week for hedge fund managers and service providers in San Francisco. The main event will be the Hedge Funds Cares event at the Bentley Reserve on Wednesday. On Tuesday the Bay Area Hedge Fund Roundtable will be hosting an event at the Sens. There will be many managers and service providers in town for these events so please come out and support the community.

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Bay Area Hedge Fund Roundtable Event

REMINDER! The Bay Area Hedge Fund Roundtable

Presents: Technology, Social Media and the Internet – Opportunity Anew or Déjà vu?

Featuring:

Isabelle Fymat – General Partner, Crosslink Capital

Glen Kacher – President, Light Street Capital Management, LLC

Brenden Smith – Managing Partner, Cypress Capital Management GP, LLC

Moderated by:

Dietrich Doerbeck – Morgan Stanley Equity Sales

APRIL 17, 2012 ♦ 3:30 PM ♦ SAN FRANCISCO, CA

REGISTRATION BEGINS AT 3:00 PM

Sens Restaurant

4 Embarcadero Center, Promenade Level

Admission is $25 – Cash only please, receipts will be provided.

♦ Cocktail Reception to Immediately Follow ♦

Please RSVP to [email protected]

Connect with BAHR via Linkedin

The Bay Area Hedge Fund Roundtable would like to welcome you to join our Linkedin page. Members can stay updated on upcoming events and can also provide ideas on current hot topics or future events which will benefit BAHR members. Please click on the below link to visit the BAHR page.

The Bay Area Hedge Fund Roundtable (“BAHR”) is an informal (and not for profit) organization of members of the Bay Area hedge fund community that was established in 2001. BAHR strives to provide intelligent, fresh perspectives from industry leaders on current developments and offer an open, casual environment where members can exchange information and expertise and further develop their relationships within the industry.

San Francisco Hedge Funds Care Event

A TIME FOR HEROES

11th Annual Hedge Funds Care San Francisco

Open Your Heart to the Children Benefit

Wednesday, April 18, 2012

4:30 – 9:00 PM

The Bently Reserve

301 Battery Street

San Francisco, CA 94111

Business Cocktail Attire

The West Coast Committee of Hearts and the San Francisco 49ers Foundation invite you to the 11th Annual San Francisco Open Your Heart to the Children Benefit on Wednesday, April 18, 2012. The evening will include cocktails, dinner, dessert, a silent auction, raffle, more than 20 local wineries pouring, and special appearances by the San Francisco 49ers including Players, Coaches, Alumni, and Cheerleaders!

For more information, please click the link or image below:

http://www.hedgefundscare.org/event.asp?eventID=61

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Cole-Frieman Mallon & Hunt LLP provides comprehensive services to hedge fund managers. Bart Mallon can be reached directly at 415-868-5345.

Hedge Fund Events April 2012

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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.

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April 1-3

Sponsor: CII
Event: Council of Institutional Investors 2012 Spring Conference: Shaping the Future
Location: Washington, DC

April 3-4

Sponsor: FRA
Event: The 4th Annual Mastering Due Diligence for Alternative Investments
Location: New York, NY

April 6

Sponsor: Hedge Funds Care
Event: Conquer Vail for Kids
Location: Vail, CO

April 10

Sponsor: SEHFA
Event: Off the Grid Economic Indicators – Gold, Guns and Google Searches
Location: Atlanta, GA

April 11

Sponsor: Hedge Funds Care
Event: Cocktails & Commentary – The Importance of Administration Analytics – Form PF, FATCA and Beyond
Location: New York, NY

April 15-17

Sponsor: Sovereign Wealth
Event: Institute Fund Summit 2012
Location: Dana Point, CA

April 18

Sponsor: Hedge Funds Care
Event: 11th Annual San Francisco Open Your Heart to the Children Benefit
Location: San Francisco, CA

April 18

Sponsor: iGlobal Forum
Event: 2nd Annual Commodities Investing Summit
Location: New York, NY

April 18

Sponsor: FMW
Event: Exchange Traded Funds: Products & Lifecycle
Location: New York, NY

April 18-19

Sponsor: FRA
Event: The 13th Annual Sub-Advised Funds Forum
Location: Boston, MA

April 19

Sponsor: FMW
Event: Introduction to Hedge Fund Compliance
Location: New York, NY

April 19-20

Sponsor: Marcus Evans
Event: 5th Annual Optimizing Operational Efficiency in the Energy Trading Market: Achieving Back Office Efficiency Despite Regulatory Uncertainty
Location: Houston, TX

April 19-21

Sponsor: CreativeMine
Event: The CreativeMine Roundtable on Film: The Film Industry’s Role for Alternative Investment
Location: Atlanta, GA

April 23

Sponsor: Catalyst Financial Partners
Event: Cap Intro: Credit | Fixed Income Alternative Investing
Location: New York, NY

April 23-25

Sponsor: HighQuest Partners
Event: Global AgInvesting 2012
Location: New York, NY

April 24

Sponsor: Halsey Roundtable
Event: Roundtable Forum
Location: New York, NY

April 24

Sponsor: AltAssets
Event: LP-GP Forum: Clean Energy & Sustainability
Location: New York, NY

April 25

Sponsor: Capital Link
Event: 11th Annual Closed-End Funds and Global ETFs Forum
Location: New York, NY

April 25

Sponsor: New Energy World Network
Event: Envirotech & Clean Energy Investor Summit 2012
Location: New York, NY

April 25-27

Sponsor: Opal
Event: Real Estate Investors Summit: Dealmakers Conference
Location: Miami, FL

April 25-27

Sponsor: IAA
Event: 2012 Annual Conference: The Winds of Change
Location: San Francisco, CA

April 26

Sponsor: HFA
Event: Emerging Managere Perspectives Symposium
Location: New York, NY

April 30

Sponsor: IMN
Event: The 3rd Annual Active-Passive Investor Summit: Exploring the New Age of Shareholder Activism and Corporate Governance
Location: New York, NY

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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.