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12 Board of Directors Composition as a Means to Mitigating the Governance Challenge »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter explains how the composition of the board of directors can mitigate the governance challenge in private investment funds. The dependence of a private investment fund on the fund manager is a key factor in the governance challenge. Directors of the fund vehicle must ensure that their fiduciary duties are adequately fulfilled, especially in circumstances that put them in direct conflict with the fund manager. The inclusion of directors who are independent of the fund manager can serve to better address the governance challenge for all participants in a particular investment fund. The chapter first considers the two complementary functions of independent directors—providing specialized advice and expertise to the executive directors and monitoring executive decision-making—before discussing their duties as well as their effectiveness. It also examines the role of directors in general partner vehicles and the limitation on the effectiveness of independent directors.

14 Evaluating and Implementing Private Monitoring Solutions »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter considers three private monitoring solutions designed to help fund investors better address the problems arising from the governance challenge by facilitating a better flow of information from the fund manager to the investors and their agents. All three private monitoring solutions recognise the commercial contexts in which private investment funds operate by emphasizing voluntary steps that fund managers and investors can take incrementally. Each focuses on the provision of accurate and timely information as the means to overcome the investment protection concerns that arise due to the collectivised nature of the private investment fund. The chapter first looks at the criticisms against private monitoring solutions as well as the limits of financial regulation before discussing due diligence as the commercial foundation for private monitoring solutions. It also examines how to best support the wider adoption and implementation of private monitoring solutions.

Further Material »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler

16 The Global Frontiers of Private Investment Funds »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter discusses the global expansion of private investment funds in the twenty-first century, focusing on two regions: Asia and the Middle East. In particular, it examines questions about the balance of power between fund managers and investors, the role of top-down regulation in non-public financial transactions, and the ability of private monitoring solutions to provide a meaningful alternative to such approaches. The chapter first describes the asset management industry in the United Arab Emirates, with emphasis on the roles of the Dubai International Financial Centre and the Dubai Financial Services Authority, before turning to Saudi Arabia and Islamic investment funds. It also considers Hong Kong and Singapore as centres of private investment funds in Asia, along with passporting and recognition that facilitate the cross-border offering of funds in other participating jurisdictions throughout the continent.

7 Governance Issues in Offshore Companies Used as Private Investment Funds »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter examines issues of governance arising from the use of offshore companies as private investment funds. Funds established in offshore jurisdictions are often structured as limited companies that issue shares to investors. Governance issues can arise in offshore companies when voting rights are separated from economic participation. The chapter first considers the role of the board of directors in private investment funds before discussing taxation issues affecting offshore companies used as private investment funds in the UK and in the United States. It then explains the duties of directors under Cayman Islands law, including fiduciary duty, duty of care, diligence, and skill, and duty of confidentiality. It also describes the composition of the board of directors, its meetings, relationship with the fund manager, and responsibility for approval of fund documentation.

6 Governance Issues in Partnerships used as Private Investment Funds »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter examines issues of governance arising from partnerships used as private investment funds. A limited partnership has two categories of partner: general partners and limited partners. The chapter first considers the role and duties of general partners and limited partners before discussing the English law vs Delaware law on limited partnerships, focusing on the advantages and disadvantages of Delaware law. It then looks at the UK legal reform on limited partnership and how the limited partnership agreement can be used to address the governance challenge presented by private investment funds. It also explains the duties of partners with respect to the governance challenge, taking into account the fiduciary duty in Delaware partnerships, the fiduciary duty of the board of directors under Delaware law, the Delaware Court of Chancery’s ruling in USA Cafes, and developments following USA Cafes.

1 Introduction to Private Investment Funds »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter provides an introduction to private investment funds. It first considers the governance challenge in private investment funds that can be regarded as a need to improve the standard of corporate governance in the legal vehicles that comprise such funds. In particular, it examines the manner in which hedge funds and private equity funds affect the corporate governance of the portfolio companies in which they invest. The chapter proceeds by discussing governance issues arising from the use of partnerships vs. corporations as private fund vehicles, along with the consequences of governance failures and the function of private investment funds. It also analyses legal and regulatory issues surrounding the structuring and operations of private investment funds, the legal and fiduciary duties of the investment manager, and fiduciary duty in the financial services regulatory regime. Finally, it describes alternatives to centralised, top-down regulation of private investment funds.

8 Investor Protection Concerns in Private Investment Funds »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter examines the governance challenge in private investment funds arising from investor protection failures. It begins with a discussion of the Madoff affair, which brought to the fore alleged failures in reporting, oversight and governance mechanisms regarding private investment funds, whether hedge funds, private equity funds, real estate opportunities funds or other more esoteric investment pools. It then considers some issues which the Madoff debacle drew attention to, including the presence of multiple fund vehicles in the same structure or in interconnected structures such as parallel funds, master-feeder, and fund of funds. It also analyses the Financial Conduct Authority’s (FCA) concerns about hedge fund fraud and conflicts of interest that may arise in the business models of any of the participants in the private equity market. Finally, it describes ongoing diligence and oversight regarding private investment funds and the Securities and Exchange Commission’s (SEC) concerns over due diligence involving private funds.

The Law of Private Investment Funds »

Timothy Spangler

4 The Legal Duties Arising from the Provision of Investment Advisory and Management Services »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter discusses the legal duties owed by investment managers to their clients arising from the provision of investment advisory and management services. It first considers the key documents that establish the legal relationship between fund managers and investors before explaining the investment manager’s duty of care and fiduciary duty of loyalty to the client. It then examines the contracts involved in private investment funds between the fund vehicle and the fund manager, along with the fiduciary duties of directors of limited companies. It also analyses the impact of structure of investment management firms on legal duties, taking into account multiple management vehicles, the effect of fund management economics on legal structures, and the dividing line between fund manager and investors.

List of Abbreviations »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler

13 Listings of Private Investment Funds as a Means of Mitigating the Governance Challenge »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter explains how the admission to listing of private investment funds on a recognized exchange can provide a means to address the governance challenge. It first considers the regulatory functions of securities exchanges before turning to the Irish Stock Exchange (ISE), taking into account three areas relevant to the governance challenge faced by private investment funds: general obligations of disclosure, notification of interests and key developments, and communications with unitholders. It then examines how an ISE listing can provide a potential market-oriented solution to the governance challenge. It also discusses listing-related developments at the London Stock Exchange, Alternative Investment Fund Managers Directive depositories, and limitations on the effectiveness of exchange listings.

15 Litigation and Enforcement involving Private Funds after the Global Financial Crisis »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter focuses on the increase in the amount of litigation and enforcement actions against private investment funds in the United States, the UK, and across the globe as a result of the global financial crisis. As more disputes arose during the course of the global financial crisis, the legal and regulatory regime impacting private investment funds has been the subject of closer scrutiny than has been seen in previous decades. The chapter first considers the Securities and Exchange Commission’s (SEC) enforcement actions against hedge funds as well as U.S. civil litigation prior to the financial crisis before discussing Dodd-Frank and its effect on enforcement. It then examines the SEC’s enforcement actions regarding broker-dealer registration, along with some of its key enforcement actions after Dodd-Frank. It also analyses the Financial Conduct Authority’s enforcement priorities after the global financial crisis and key litigation in the UK involving private investment funds.

2 Marketing Private Investment Funds »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter examines how private investment funds are marketed, first by considering the different distribution approaches for such funds. Private investment funds are distributed mainly through private placements rather than public offers. With limited exceptions, this is generally driven by restrictions on public marketing efforts imposed by financial regulations such as the Financial Services and Markets Act 2000 (FSMA) in the UK. The chapter proceeds by discussing financial promotion restrictions in the UK as well as exemptions to these restrictions, including one-off communications, high net worth individuals, and sophisticated investors. It also explains the promotion of collective investment schemes (CIS) and the consequences of CIS categorisation before concluding with an analysis of laws that govern the marketing of private investment funds in the United States, namely: the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934.

5 The Regulatory Duties Arising from the Provision of Investment Advisory and Management Services »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter examines the regulatory duties of investment managers arising from the provision of investment advisory and management services. Managers of private investment funds that are authorised or regulated as investment advisers or managers can owe regulatory duties arising under the Financial Services and Markets Act 2000 (FSMA) in the UK and the Investment Advisers Act of 1940 in the United States. The chapter begins with a discussion of the UK Financial Conduct Authority’s (FCA) regulation of the conduct of firms authorised under the FSMA, including collective investment schemes, public investment funds, and fiduciary duty in the financial services regulatory regime. It then considers the FCA’s regulatory response to private investment funds as well as the U.S. Securities and Exchange Commission’s compliance programme for investment advisers and managers primarily under the Advisers Act. It concludes with an analysis of financial services regulation of fiduciary duties.

10 Self-Regulation and Private Actors »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter focuses on self-regulation as a means for private actors to address the governance challenge in private investment funds. It first considers the role and limits of financial regulation before discussing the ways that self-regulation and private actors can help in governing the organization, renumerating, risk management and reporting activities of private investment funds. It then examines four codes of conduct for private actors involved in private investment funds: the Best Practices of the President’s Working Group on Financial Markets, the Managed Fund Association’s Sound Practices, Sir Andrew Large’s consultation on ‘Hedge Fund Standards’, and the Institutional Limited Partners Association guidelines. The chapter concludes with an analysis of the role of investors in investor protection failures and the importance of private law for private actors seeking to address the governance challenge.

11 Side Letters as a Means of Mitigating the Governance Challenge »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler
This chapter explains how an investor can mitigate the governance challenge by entering a side letter agreement with the fund and/or the fund manager. ‘Side letter agreements’ operate to amend or supplement particular terms within the fund documentation in order to accommodate the particular commercial, legal and regulatory needs of the investors. Side letters can be used to overcome provisions in the constitutional documents of a Partnership PIF or a Company PIF that have been deemed problematic. The chapter first provides an overview of general issues surrounding side letters before discussing the terms of a side letter and how this agreement can help address the governance challenge. It also examines practical issues that must be taken into account when assessing the potential effectiveness of side letters as a private monitoring solution to the governance challenge in private investment funds.

Table of Cases »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler

Table of Contents »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler

Table of Legislation »

From: The Law of Private Investment Funds (3rd Edition)
Timothy Spangler