On June 23rd, the staff of the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a new risk alert entitled “Observations from Examinations of Investment Advisers Managing Private Funds.” As discussed in the client alert below, the report highlights many practices which have been the subject of SEC enforcement actions with private fund advisers over the past several years, and serves as a valuable reminder of some basic steps advisers to private equity and/or hedge funds can take to reduce and hopefully avoid regulatory scrutiny in these areas.
With more people working remotely than ever before in light of COVID-19, firms in the private equity and hedge fund space should review their Regulation S-P privacy and information-safeguarding policies to ensure they are compliant and ready for a prolonged period of remote work. In particular, in view of SEC guidance, firms should focus on several key areas including personal devices and personally identifiable information. Continue Reading
The ongoing COVID-19 crisis is presenting fund managers with numerous challenges. One key challenge is to make sure that their portfolio companies have sufficient capital available to weather this particular storm. But how can fund managers ensure the liquidity required by their funds and portfolio companies is available?
Proskauer’s leading Private Investment Funds team examines the ‘recycling’ options available in the market and outlines the main considerations fund managers should keep in mind when considering liquidity options.
* * *
Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.
A new and unprecedented investment environment has been created during the current COVID emergency as every state that has price gouging laws on its books has activated them, and states without official statues are regulating prices by executive order or existing consumer protection and unfair trade practice laws. Never before have price controls been active across the entire United States, and for such a lengthy period of time, requiring fund managers to consider the risks of price gouging enforcement and assess portfolio investments in light of key attributes of price gouging statues. In this article, we review these potential risks to help assist fund managers when conducting diligence and valuations in order to be better positioned to account, manage and plan for them.
In a cautionary tale about the career-limiting risks of SEC sanctions, a private fund adviser and its owner were found to have misused over $1 million of fund assets, resulting in a bar from the investment industry as well as a civil penalty.
Monsoon Capital, LLC (Monsoon) is an SEC-registered investment adviser founded and owned by Gautam Prakash. Among Monsoon’s clients is Monsoon Infrastructure & Realty Co-Invest, L.P. (MIRC), a private fund focused on infrastructure investments in India. Continue Reading
Cybersecurity breaches and threats are pervasive concerns for any entity storing valuable data or managing large sums of money: private investment funds are no exception. Recently three private equity firms suffered breaches that compromised their email accounts and wire transfers, resulting in $1.3 million in losses. We have seen the SEC follow through on its 2019 priority of examining investment advisers about their cyber-security measures, as well as inquiring if they have suffered from a cyber-security breach. We expect that trend to continue. Fund sponsors should be aware of (1) the key cyber threats they face, (2) the consequences of a breach, and (3) the statutory and regulatory framework governing cybersecurity. Fortunately, there are precautionary measures that fund sponsors can implement to help prevent a breach and to mitigate the scope and damage from a breach if one were to occur. We will elaborate on both the steps to take to guard against a breach and how to effectively respond to a breach in a forthcoming post.
We at The Capital Commitment blog have previously discussed several steps for fund managers and others to weather the storm brought by COVID-19. One of those steps is assessing the likelihood of a carried interest return obligation under a fund agreement’s general partner clawback provision (and planning for how to mitigate those obligations, if necessary). A recent article from our colleagues in Proskauer’s Private Funds group highlights the important role that general partner clawbacks play in ensuring the economic deal between a fund manager and the fund’s limited partners is protected, regardless of how market disruptions, such as those brought on by COVID-19, impact a fund’s portfolio. Continue Reading