Hedge Fund Events May 2014

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Date: April 28-May 1, 2014

  • Sponsor: High Quest Partners
  • Event: Global AgInvesting 2014
  • Location: New York City. NY

Date: April 29-May 1, 2014

Date: April 30-May 1, 2014

Date: May 1-2, 2014

Date: May 3, 2014

Date: May 5, 2014

Date: May 6, 2014

Date: May 6, 2014

  • Sponsor: Hedge Funds Care – Help for Children
  • Event: Spring Soiree
  • Location: Boston, MA

Date: May 6-7, 2014

Date: May 7, 2014

  • Sponsor: Managed Funds Association
  • Event: Compliance 2014
  • Location: New York, NY

Date: May 7-9, 2014

Date: May 8, 2014

Date: May 13-14, 2014

Date: May 12-15, 2014

Date: May 13-16, 2014

  • Sponsor: Skybridge Capital
  • Event: SALT Las Vegas
  • Location: Las Vegas, NV

Date: May 15, 2014

Date: May 15, 2014

Date: May 15, 2014

Date: May 19-20, 2014

Date: May 20, 2014

Date: May 21-22, 2014

Date: May 29, 2014

Date: May 29, 2014

Date: May 29-30, 2014

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Cole-Frieman & Mallon 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.

San Francisco Hedge Fund Events – April 22 and April 23

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There are two big events in San Francisco this week.

SF Hedge Fund Networking Group

Meeting April 22 at 4pm at Blanc et Rouge in San Francisco.  For more information, please see the LinkedIn page.

Hedge Funds Care 13th Annual Benefit

The annual Open Your Heart to the Children event featuring the San Francisco 49ers Foundation is on April 22 at 4:30pm.  This year the event will be at the City View space at the Metreon and will feature a number of Bay Area wineries.  For more information on the event and to buy tickets, please go here.

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Cole-Frieman & Mallon LLP provides legal services to the hedge fund industry.  Bart Mallon can be reached directly at 415-868-5345.

 

CFTC Issues No-Action Letters for CPO Registration Relief

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Hedge Fund General Partner CPO Registration Relief 

In a series of no-action letters issued in March, the CFTC has granted no-action relief from registration as a commodity pool operator (“CPO”) for a general partner of a fund (or a managing member, if the fund is an LLC) that delegates its entire management authority over the fund to another entity – typically an “investment manager” entity – that is under common control with the general partner. Under this relief, the investment manager is required to register as a CPO, but the general partner is relieved from the CPO registration requirement.

Background on CPO Registration

Based on the legal structure of a fund organized as a limited partnership or limited liability company, typically the general partner or managing member (respectively) has the operational authority over the fund that makes CPO registration process necessary. Under the Commodity Exchange Act of 1936 (the “Act”), an entity that engages in the following activities on behalf of a fund (a “pool” in CFTC parlance) is generally required to register as a CPO:

“any person engaged in a business that is of the nature of a commodity pool, investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in commodity interests.”  See text here.

In some fund structures, however, the general partner may wish to delegate its CPO responsibilities to an investment manager. This is often (but not exclusively) done in the context where a fund’s performance allocation is paid to the general partner, in order to obtain favorable tax treatment, but the investment manager runs the fund on a day-to-day basis, often receiving management fees as compensation. In this situation, it would be costly and burdensome to register both the general partner and the investment manager as separate CPOs of the fund, so it may be worthwhile to request CFTC no-action relief.

Requirements for No-Action Relief

The CFTC issued four no-action letters outlining the general guidelines for how to take advantage of the CPO registration relief described in this article: CFTC Letter No. 13-17, CFTC Letter No. 13-18, CFTC Letter No. 13-19, and CFTC Letter No. 13-20. Although the facts of each no-action letter differ somewhat, the following basic requirements apply. The general partner and investment manager should be able to make representations to the CFTC with respect to each of the following:

• Common Ownership and Control. The general partner entity and the investment manager entity should have the same owners and be subject to the control of the same persons.

• Delegation Agreement – All Management Authority. The general partner and investment manager should enter into a “Delegation Agreement” whereby all of the CPO-related authority of the general partner is delegated to the investment manager.

• Soliciting Clients and Managing Assets. The general partner must not engage in the solicitation of investors to the fund, and must not manage the property of the fund.

• Books and Records. All books and records related to the CPO activities should be maintained at the offices of the investment manager.

• CPO Registration. The investment manager must be registered or be in the process of registering as a CPO, and must maintain its registration on an ongoing basis.

• Employees and Agents. The general partner must not have any employees or others acting on its behalf, and must not engage in any other activities that would subject it to the Act or the CFTC’s regulations.

• Joint & Several Liability. The general partner and investment manager entities must agree to be jointly and severally liable for any violation of the Act or the CFTC’s regulations.

• Statutory Disqualification. The general partner cannot be subject to statutory disqualification from CPO registration under section 8a(2) or 8a(3) of the Act.

How to Apply for No-Action Relief

If you wish to apply for the no-action relief described above, you will need to draft a letter to the CFTC to request the relief. This letter should comply with the requirements of CFTC Regulation 140.99. Please reach out to us if you would like any assistance with drafting such a letter.

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Cole-Frieman & Mallon LLP acts as legal counsel to the investment management industry.  If you have questions on the above please contact us or call Bart Mallon directly at 415-868-5345.

California Finance Lenders License

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California Requirements for Hedge Funds and Private Equity Funds Engaged in Lending Businesses

Investment advisers, private equity managers, private fund managers, and other businesses that are engaged in making loans should be aware of whether their activities fall under the purview of the lending laws of any state such that they would be required to obtain a license and comply with certain ongoing regulatory requirements.

Under California law, finance lenders (defined as “any persons who are engaged in the business of making consumer loans or making commercial loans”) and finance brokers (defined as “any persons engaged in the business of negotiating or performing any act as brokers in connection with loans made by a finance lender”) are required to obtain a California Finance Lenders License. Private investment funds, such as hedge funds and private equity funds, that engage in such activities are no exception.

Notwithstanding the foregoing, the California Finance Lenders Law (“CFLL”) exempts certain transactions from its licensing requirements. Lenders relying on these exemptions will be able to avoid a lengthy application process with the California Department of Business Oversight and its associated requirements and costs.

New and Existing Exemptions under the California Finance Lenders Law

Effective January 1, 2014, section 22050(e) of the California Financial Code was amended to exempt persons who make five or fewer commercial loans in a 12-month period, provided that the loans are incidental to the business of the person relying upon the exemption. This amendment expanded the previous de minimis exemption for any person making just one commercial loan in a 12-month period. As such, investment advisers, private fund managers, and other members of the investment management industry that occasionally provide commercial loans may take advantage of this expanded safe harbor as long as such loans are incidental to their primary business.

A full list of exemptions is set forth under Sections 22050 – 22065 of the California Financial Code, providing relief from CFLL regulation for other types of transactions and specific entities licensed by other regulatory agencies. Among those exempt are the following:

• Banks, trust companies, savings and loan associations, insurance premium finance agencies, credit unions, small business investment companies, community advantage lenders, California business and industrial development corporations, or licensed pawnbrokers;

• Loans made or arranged by persons licensed as a real estate broker by the state and secured by a lien on real property, or to any licensed real estate broker when making such loan;

• Commercial bridge loans made by a venture capital company to an operating company, subject to certain requirements.

If you are engaged in lending transactions, we encourage you to contact your legal counsel to determine if you are eligible for one of the exemptions under the CFLL.

Licensing and Regulation under the California Finance Lenders Law

Finance lenders unable to avail themselves of an exemption from CFLL regulation will need to submit an application to the California Department of Business Oversight. Currently, the application must include the following attached items:

• Balance sheet

• Surety bond in the amount of $25,000

• Proof of Legal Presence (for sole proprietor applicants)

• California Customer Authorization for Disclosure of Financial Records Form

• Fictitious Business Name Statement (if applicable)

• Certificate of Status or Good Standing in the applicant’s state of formation and in CA

• Partnership Agreement (for general partnership applicants)

• Federal Taxpayer Identification Number or Social Security Number (for sole proprietors)

• Organization Chart for the Applicant

In addition, each individual responsible for the applicant’s lending activities must complete a “Statement of Identity and Questionnaire” and provide fingerprints. The application fee is currently $200 (nonrefundable), plus an investigation fee of $100 and fingerprint processing fees ($20 per California resident; $80 per non-California resident).

It should be noted that the licensing process for residential mortgage providers (mortgage lenders and brokers) is a separate application, filed through the Nationwide Mortgage Licensing System.

Once approved, licensees are subject to periodic regulatory examinations for which they must pay; pay an annual assessment each year; file an Annual Report by March 15 of each year; are subject to statutory books and record requirements; and must maintain a $25,000 surety bond at all times.

If you are subject to licensing would like our assistance with obtaining a California Finance Lenders License, please contact us.

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Cole-Frieman & Mallon LLP provides legal services to hedge fund and private equity funds.  Bart Mallon can be reached directly at 415-868-5345.

NFA May Impose Capital Requirements, Other Restrictions on CPOs and CTAs

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NFA Suggests New Rules, Solicits Comments from CPOs and CTAs

The NFA recently issued a Notice to Members that included a Request for Comments on a proposal to subject CPOs and CTAs to new rules. These rules, which include a minimum capital requirement for CPOs and CTAs, would be intended to protect customer funds and ensure that CPOs and CTAs have sufficient assets to operate as a going concern.

The NFA justified the need for these rules by citing 26 Member Responsibility Actions that were taken over the past 3 years, mostly against CPOs and CTAs for misuse of customer funds and/or misstatements of net asset values and performance information. Comments are due to the NFA by April 15, 2014.

Rules Under Consideration

The NFA did not propose any language for the rules in its Request for Comments, nor did the NFA suggest any details on how the rules might be drafted. Instead, the NFA implied what rules are under consideration by posing questions to CPOs and CTAs on the utility of certain rules, and on what standards should be applied to implement them.

CPOs and CTAs

• Capital Requirements. CPOs and CTAs may be required to maintain a minimum amount of capital, and to file periodic reports with the NFA to demonstrate compliance. However, the NFA’s Request for Comments indicates a degree of flexibility. For example, the NFA asked for members who oppose a capital requirement to suggest alternatives for ensuring that CPOs and CTAs have sufficient funds to operate as a going concern.

• Inactive NFA Members. NFA members that are not actively trading futures or commodity interests may have their NFA membership withdrawn, so that the NFA can stop expending regulatory resources on these firms.

CPOs Only

• Gatekeeper for Pool Disbursements. CPOs may need to retain an independent third party to approve pool disbursements (a “gatekeeper”).

• NAV Valuation and Reporting. An independent third party may be required to prepare or verify a CPO’s pool NAV valuations, and such valuations may need to be submitted periodically to the NFA.

• Performance Results. An independent third party may have to prepare or verify a CPO’s pool performance results.

• Verification of Pool Assets. CPOs and the entities actually holding pool assets may both be required to report pool asset amounts to the NFA, so that the NFA can cross-reference the reports for consistency. This could be similar to rules currently in place for futures commission merchants.

Conclusion

The new rules being considered are in the earliest stages of development, but it is clear that the NFA is concerned about the misuse of customer funds and the risks posed by undercapitalized CPOs and CTAs. Any CPOs or CTAs interested in commenting on the rules under consideration should submit their comments to the NFA via email to [email protected] by April 15, 2014.

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Cole-Frieman & Mallon LLP provides legal advice to the managed futures industry and works with FCMs, IBs, CPOs, and CTAs.  Bart Mallon can be reached directly at 415-868-5345.

SEC Compliance – Custody Issue

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Annual Update Guidance on Custody Issue

It is that time of year that registered investment advisers are focusing on the ADV annual updating process.  Occasionally the SEC will provide guidance to managers on common questions applicable to the application or updating process.  Below is a note the SEC sent out to all registered investment advisers regarding the custody issue.  If you have questions on the application of the custody rules to your particular situation, you should discuss with your law firm or compliance consultant.

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To: SEC-Registered Investment Advisers,

This email is a reminder that all SEC-registered advisers that have custody of client assets should answer all questions in Item 9 of Part 1A of Form ADV. Each adviser’s answers will vary depending on facts and circumstances.

For example, advisers that have custody solely because they deduct fees from client accounts would respond “no” in Item 9.A. Additionally, these advisers would likely respond “no” in Items 9.B., and 9.D., and they likely would not need to provide information in Items 9.C. or 9.E. However, in Item 9.F., these advisers likely would need to indicate that there is at least one person acting as qualified custodian for their clients in connection with advisory services they provide to clients.

If you have questions, you may reply to this email.

U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, N.E.
Washington, DC 20549-8549
Phone | 202.551.6999

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Cole-Frieman & Mallon is a boutique law firm which provides regulatory compliance and consulting services to the investment management industry.  Bart Mallon can be reached directly at 415-868-5345.

Hedge Fund Events March 2014

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

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March 3

March 3-4

March 3-4

March 3-5

March 4-5

March 4-5

March 5-7

March 6

March 6

March 6

March 6

March 6

March 6

March 11

March 11-14

  • Sponsor: FIA
  • Event: Boca 2014
  • Location: Boca Raton, FL

March 12

March 12

March 12

March 12-13

March 13-14

March 19

March 19

March 24-25

March 24-25

March 24-25

March 24-25

March 24-26

  • Sponsor: WBR
  • Event: FIMA 2014
  • Location: Boston, MA

March 25-26

March 25-26

March 25-26

March 26-28

March 31

March 31-April 2

March 31- April 1

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Cole-Frieman & Mallon 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.

 

SAIA Panel Event – March 6th

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Please see below information on the Seattle Alternative Investment Association event on March 6th.

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Please sign up now to attend SAIA’s next panel discussion, which is scheduled for Thursday, March 6, 2014.

This event is called: “The New Investment Regime: Opportunities Arising from the Shake-Up of Wall Street and Regulatory Reform.” The discussion will focus on recent SEC regulatory changes, with a particular emphasis on how investment funds and allocators are adapting to the new landscape.

The panelists will include Gabe Poggi, Portfolio Analyst at EJF Capital LLC and Sanjai Bohnsle, Managing Director at Arrowpoint Partners. The discussion will be moderated by Elli Kavros, Executive Director at Morgan Stanley.

It will be held in the Puget Sound Conference Room at 1918 8th Avenue in downtown Seattle (at the corner of 8th and Virginia). Registration begins at 5:30 and the event begins at 6:15 PM and will run until 7:30-7:45 PM.

Seating is limited, so please register to confirm your attendance. To register, go to www.nwhfs.com and click on “News and Events.” At the Events page, click on “register for this event.” This event is free for SAIA members. Otherwise the single event fee is $75 (paid via PayPal, or collected at the door).

If you have any problems with registration or questions, please send an email to ([email protected]). Thank you for your time and interest in SAIA and we look forward to seeing you on Thursday, March 6th.

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Cole-Frieman & Mallon LLP is a boutique investment management law firm.  Bart Mallon serves on the SAIA board and he can be reached directly at 415-868-5345.

Hedge Fund Events February 2014

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

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February 3-5

February 4

February 4

February 4

February 4

February 6

February 8-10

February 11

February 11

February 11-12

February 12

February 12

February 14

February 19

February 19

February 19

February 19-20

February 24

February 24

February 24

February 24

February 24

February 24-26

February 25

  • Sponsor: WBR
  • Event: Trade Tech
  • Location: New York, NY

February 25-26

February 25-26

February 26

February 26-27

February 26-28

February 26-28

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Cole-Frieman & Mallon 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