Hedge Funds

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Confession: writing this in May 2025, we cannot predict with confidence what the rest of 2025 will bring. The year has already seen four months of change and upheaval – political, regulatory, and economic. The new US administration has touted a business-friendly regulatory environment, with actual and promised tax cuts and deregulation. However, geopolitical tensions, tariff trade wars and political instability have introduced new risks and created a climate of extreme unpredictability. We should expect 2025 to hold several surprises still, whether that is a breakout of peace or new political themes obtaining prominence in one or more jurisdictions.

The “Liberation Day” tariffs and associated countermeasures have created significant market volatility, prompting renewed scrutiny of private fund managers’ compliance with longstanding SEC focus areas such as valuation, investor communications, liquidity, borrowing and related disclosures. Sponsors should document any changes to valuation practices, maintain transparent and timely communications with investors…

On June 14, 2024, the SEC announced an enforcement action settlement with a Pennsylvania-based hedge fund manager for violating the Marketing Rule under the Investment Advisers Act. The SEC found that the adviser had misled investors by advertising a hedge fund’s investment performance based on the investment performance of a…

To understand the litigation and regulatory risks that are coming in 2024 for private capital, it is helpful to look back briefly on recent events. Arguably, the single most important event over the last 18 months was the rapid increase in interest rates by the central banks in the United States, England, and Europe. From March 2022 to August 2023, the Federal Reserve increased interest rates at the fastest clip in more than 40 years, to break inflation that had reached the highest levels since the 1970s.

As IPOs and other traditional paths to liquidity for private assets have become more challenging, GP-led secondary transactions have emerged as a powerful and popular tool across closed-end private funds, leading to explosive growth over the last five years. And while macro factors influence their prevalence year over year, these transactions remain broadly popular across the various stakeholders in these transactions, facilitating different goals for different parties: 

  • Existing Investors (LPs):  Near-term liquidity in a liquidity-constrained market, typically with an option to continue participation if desired
  • New Investors (Buyers):  Access to a mature portfolio with unrealized upside
  • Fund Adviser (GP):  Extended duration to capture future upside of well-performing assets, additional capital to support existing portfolio, and reset economics aligning with longer-term outlook

On Friday, March 10, 2023, Silicon Valley Bank (“SVB”) became the largest U.S. lender since the Great Financial Crisis to enter into receivership with the Federal Deposit Insurance Corporation. SVB was a major provider of depository services and liquidity to various investment funds, managers and their related entities through subscription…

The SEC prevailed on a motion to dismiss a closely watched lawsuit alleging that a company employee had engaged in insider trading based on news about a not-yet-public corporate acquisition when he purchased securities of a third-party company that was not involved in the deal. The January 14, 2022 decision in SEC v. Panuwat (N.D. Cal.) marks the first time a court has considered the theory of “shadow trading,” which involves trading the securities of a public company that is not the direct subject of the material, nonpublic information (“MNPI”) at issue.

The Panuwat ruling does not appear to break new ground under the misappropriation theory of insider trading under the particular facts alleged. But the “shadow trading” theory warrants attention because it can have wide-ranging ramifications for traders, including hedge funds.

The SEC recently charged a former employee of a biopharmaceutical company with insider trading in advance of an acquisition but with a unique twist: Trading the securities of a company unrelated to the merger. The employee, Matthew Panuwat, did not trade his own company’s or the acquiring company’s securities, but…

Registered advisers should take note that on June 17th, the SEC adjusted the dollar amount thresholds for clients of registered advisers to be deemed to be “qualified clients” under rule 205-3 of the Investment Advisers Act of 1940, which permits registered investment advisers to charge performance-based fees to such clients.…