Author Archives: Hedge Fund Lawyer

Can a hedge fund value its own assets?

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Hedge Fund Questions

For the new year we will publish a list of common questions we receive from our readers.  This question involves hedge fund valuation.

Question: Can a hedge fund provide its own valuation?

Answer: Generally yes, provided that the hedge fund offering documents state that the valuation of the hedge fund’s assets will be conducted by the fund – more specifically by the hedge fund’s management company.  In many hedge fund documents a provision which allows a manager flexibility in valuation is standard – although, it is likely that these normally nebulous provisions will become more specific as institutional investors require greater specificity in the offering documents. Continue reading →

Hedge Funds, Congress and Madoff

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The Madoff scandal, which caught the SEC and savy institutional investors flat-footed, is increasing the pressure for more oversight and regulation within investment management and hedge fund industries.   It is expected that Congress will be busy with this and other matters regarding regulation of the capital markets.  In fact, Senator Chuck Grassley from Iowa recently announced his intention to require hedge fund registration at the SEC level.

In addition to Grassley, two more members of Congress are calling on greater oversight in the wake of the Madoff scandal.  Specifically Congressman Paul E. Kanjorski from Pennsylvania and Congressman Spencer Bachus from Alabama are calling on the House Financial Services Committee to hold hearings on the Madoff scanal.  I have reprinted the two notices below.  We will continue to provide information on possible hedge fund registration as it comes forward.  Related hedge fund law and registration articles include: Continue reading →

Idaho Hedge Fund Law

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Idaho has another well run securities division and their website is particularly helpful.  The information below comes from their website and describes the major laws that hedge fund managers in Idaho need to be concerned about.  The information is applicable to traditional securities-only hedge fund managers (with regard to investment advisor registration) and also to forex hedge fund managers.  Like many states Iowa has enacted a commodity code which may apply to forex managers depending on the nature of the manager’s forex program.  Continue reading →

Iowa Hedge Fund Law – Starting a Hedge Fund in Iowa

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Iowa has a very good securities division which is familiar with the rules regarding hedge fund private placements.  The notice below was provided by Iowa’s securities division to inform entities engaging in private placements the specific rules applicable to Iowa.  Notice like this is invaluable to start up hedge funds as it will help the manager to know what exactly the rules are in Iowa.  As we’ve noted in other articles (Overview of Regulation D for Hedge Funds), each state will have different rules regarding Rule 506 offerings which most all hedge funds utilize.  Of great importance for hedge fund managers, the letter below discusses how non-accredited investors should be treated for the purpose of Iowa. Continue reading →

Investment Advisor Fraud

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Another Investment Advisor Ponzi Scheme

In the wake of the Madoff scandal the SEC is taking out other fraudulent investment advisory firms.  The release below details a south Florida investment advisor who perpetrated a multi-million dollar ponzi scheme.  As we noted in Lessons in Hedge Fund Due Diligence, it is so important for investors to conduct proper due diligence on their investment advisors or hedge fund managers. Continue reading →

Starting a Hedge Fund – Primer for Start Up Hedge Fund Managers

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How to Start a Hedge Fund

Many future hedge fund managers have misconceptions about how to start a hedge fund – either they think it is a very basic process that takes no time or resources, or they think that it will take too much time and will be cost prohibitive.  For most start up hedge funds, the manager can be up and running within a month depending on whether the manager will need to be registered with the state securities commission (please see our article on start up hedge fund timelines).  This article will detail the steps the manager will need to take to start the hedge fund. Continue reading →

SEC Hedge Fund Registration Exemption – Section 203(b)(3) and Rule 203(b)(3)-1

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Exemption from the Registration Provisions of the Investment Advisors Act

We have discussed the SEC hedge fund registration exemption many times before, but we have not addressed it directly.For most management companies with a single hedge fund client, registration is actually a relatively easy and straightforward process.  Once hedge fund managers are registered as investment advisors with the SEC there are certain recordkeeping requirements for the hedge fund manager, but the requirements are not onerous (for more information, please see ).

Notwithstanding the above, many managers will choose to remain unregistered for a variety of different reasons and those managers will typically rely on the hedge fund registration exemption found in Section 203(b)(3) of the Investment Advisors Act of 1940.  The exemption and the rule underlying the exemption is detailed in full below. Continue reading →

NFA Interpretive Notices on Advertising Practices – Applicable to NFA Forex Members

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Earlier we discussed a release by the NFA in which they expressed the desire to apply the NFA Compliance Rule 2-29 to current NFA Members who are involved in the off-exchange forex markets (see NFA Proposes Rule 2-29 Apply to Forex Members).  We believe that the CFTC will approve the NFA’s request and thus certain aspects of Compliance Rule 2-29 will apply to NFA Members who trade forex.  We also believe that once the forex registration provisions are promulgated by the CFTC, this compliance rule will also apply to those forex managers.  In anticipation of such developments, we’ve summarized below (and linked to) the major interpretive notices that the NFA has released on Compliance Rule 2-29. Continue reading →

Obama Names Future Financial Market Regulators

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President-elect Brarack Obama’s choices for the head of the SEC and the CFTC have been generally well-received.  Mary Schapiro and Gary Gensler have very large jobs ahead of them as Congress is expected to require hedge fund registration with the SEC, and the CFTC also has the mandate to regulate the off-exchange forex markets.  As always we stess that any regulation should be reasonable and considered; knee-jerk legislation will not lead to more fair markets.

The releases below come from current SEC Chairman Cox and CFTC Acting Chairman Lukken. Continue reading →

Illinois Hedge Fund Law – Various Laws and Regulations

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Perhaps not surprising, Illinois has a very well developed Securities Division website which provides its investment advisors (and potential investment advisors) with many informative articles.  In this article we have reprinted three separate resources which we found helpful for potential hedge fund managers located in Illinois.

The first resource provides a basic overview of investment advisors and the separation of regulatory jurisdiction between the federal government and the states.  This resource is glib on whether hedge fund managers in Illinois need to register as investment advisors with the state – generally they do not.  For those managers which are registered with Illinois, the second resource provides an overview of the potential for on-site examinations of the manager’s business.  The final resource provides an overview of the different fees which an advisor registered (or notice filed) in Illinois will need to pay. Continue reading →