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The weekly news source for investment management legal and compliance professionals

Topic: Fund Governance

Don’t Promise One Investment Strategy to Investors and Use Another

September 21, 2018
Investors might justifiably be somewhat upset if they find out that the fund in which they invested had to shut down. They might be even more bothered if they discover that the adviser managing the fund invested their dollars using a higher risk investment strategy than promised – and so might the SEC.

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Failure to Disclose All Redemption Options May Lead to Enforcement Action

September 14, 2018
It may be tempting to be nice when an investor wants to cash in part of his or her investment with shorter notice window than your firm usually allows. But a shorter redemption window for some investors may lead to unfair results for other investors forced to wait – especially if all redemption options have not been disclosed.

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Product Decisions Without Promised Internal Review May Lead to SEC Sanctions

September 14, 2018
Don’t fall into the trap of adding or dropping investment products to satisfy clients or business affiliates without conducting the internal reviews promised in Form ADV and marketing materials. Such actions may at the time seem like a way to keep key stakeholders happy, but it is a recipe for an SEC investigation and possible enforcement action.

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Advisers and Funds Cautiously Move Forward on Liquidity Rule Compliance

August 16, 2018
Many advisory firms and fund complexes are taking steps to comply with the requirements of the SEC’s Liquidity Risk Management Rule, but there are differences in how they comply – not only between advisers and fund complexes, but within each group. Changes in some of the requirements and deadlines have added to the mix.

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Associations Support Proposed Liquidity Rule Changes. . . But Suggest More

June 15, 2018
The period for public comments on the SEC’s proposed amendments to the Liquidity Risk Management Rule is over, and the comments, at least from three major associations in the asset management community, appear to be positive – but with suggestions for more changes.

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New Law Reforming Dodd-Frank Affects Advisers and Funds

May 31, 2018
Now that the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) has been signed into law, what’s in it for investment advisers and investment companies? Not a lot, it turns out, but there are key measures that advisory firms and funds should be aware of.

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Restricted Lists: Update, Monitor and Avoid Common Errors

April 6, 2018
Many advisory firms maintain "restricted lists:" compiled names of companies and securities with which they do not allow trading. These lists protect an advisory firm from a number of dangers – but advisers with such lists need to ensure they are properly updated, monitored and that they avoid mistakes that may cause problems down the road.

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SEC Moving Forward on Exchange-Traded Funds Rule

March 23, 2018
The SEC under chairman Jay Clayton has a relatively short list of regulatory priorities for 2018, and one that appears to be on the high-priority track is proposing an Exchange-Traded Funds Rule. Division of Investment Management director Dalia Blass, who spoke on the need for such a rule at a recent conference, is clearly an advocate of getting such a rule adopted.

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SEC Reverses Itself and Votes Against Public Reporting of Liquidity Classifications

March 16, 2018
In something of a turnaround, the Commission on March 14 voted, 3 to 2, to change a previously adopted liquidity classification requirement. Under the proposed amendments, funds will no longer need to publicly report the classification buckets their securities fall into. Instead, they will simply need to provide a qualitative narrative describing how their liquidity risk management programs are working.

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Liquidity FAQs Fill in the Blanks on Classification by Asset Class

March 9, 2018
When the SEC delayed the Liquidity Risk Management Rule classification compliance date by six months recently, it also issued a new set of answers to frequently asked questions that should make fund compliance with the Rule somewhat easier. The FAQs, which follow up on an earlier set issued in January, provide agency staff thinking on a variety of topics, including classifying liquidity by asset class, the 15 percent limit on illiquid investments, and more.

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Cryptocurrencies: Caution is the Watchword as This Digital Avenue Grows

March 2, 2018
Digital currencies such as bitcoin and ethereum may be the wave of the future – but that future is not here yet and may not be for a while. Advisers, investment companies and broker-dealers looking at cryptocurrencies should consider holding back until the SEC and other regulators work out a number of outstanding questions, many of which have a direct bearing on investor protection and fiduciary duty.

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SEC Extends Liquidity Rule Classification Deadline by Six Months

February 23, 2018
Mutual fund managers concerned about the requirements of the SEC’s Liquidity Risk Management Rule got a partial reprieve on the evening of February 21. The Commission voted to create an interim final rule extending the compliance deadline for the most contentious part of the Rule – the requirement that open-end funds classify their securities into four liquidity groupings, often referred to in the industry as "buckets" – by six months.

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SEC Files Misrepresentation Charges Against Adviser Raising Money to Flip Real Estate

February 2, 2018
Flip or flop? Advisers seeking to raise money from clients and investors for the declared purposed of flipping residential properties would be wise to ensure that the dollars raised go to that purpose. The SEC has filed charges against an adviser and others for allegedly failing to do just that.

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Undisclosed Investment Strategy Changes Unlikely to Save the Day

January 26, 2018
An adviser may start a fund with high expectations, but find that, for a number of reasons, returns do not come in as expected, and in fact go south. Advisers in such situations may be tempted to turn to a higher risk/higher reward investment strategy in the hope it will make up for the losses. Those that do should be aware that such a move may bring with it business and compliance challenges that no adviser wants to face.

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SEC Liquidity Risk Management FAQs Flesh Out ETFs, Role of Subadvisers

January 18, 2018
Funds and advisers with questions about liquidity risk management programs may breathe a bit easier – at least if some of those questions pertained to how in-kind exchange-traded funds work and the role of sub-advisers. The SEC’s Division of Investment Management on January 10 issued FAQs that address at least some of the questions that have arisen in these areas.

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Treasury Urges Liquidity Rule Compliance Date Delay, No Classification Buckets

November 3, 2017
The Treasury Department’s recommendations that the SEC postpone at least one of the scheduled compliance dates for Rule 22e-4, the Liquidity Risk Management Rule, and eliminate the requirement that funds categorize assets into four liquidity classifications was an industry-friendly move that will likely find much applause in the asset management industry.

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Sub-Advisers and Their Role in Liquidity Risk Management Rule Compliance

October 20, 2017
Advisory firms are taking steps to comply with the Liquidity Risk Management Rule. With the compliance dates approaching – funds with more than $1 billion in net assets have only a little more than a year left to comply – smart advisers are not letting the grass grow under their feet. They are getting the preparation process underway in a variety of areas, among them the role that sub-advisers will play.

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Failure to Provide Counsel with Key Information Likely Won’t Pass SEC Muster

October 13, 2017
When seeking legal advice, advisers should provide all relevant material facts to the attorney. Failure to do so may result in a legal opinion that won’t stand up to SEC scrutiny.

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Jury Rules Against F-Squared Founder in Federal Court

October 13, 2017
The SEC came out the winner on October 6, when a federal jury ruled against advisory firm F-Squared Investments founder and former CEO Howard Present in a case the agency brought almost two years ago in federal district court.

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Failure to Disclose Reserve Funds and Related Fees May Lead to Enforcement

September 15, 2017
Reserve funds are sometimes created and used by advisory firms to "smooth" investor earnings or to ensure redemption requests can be met. Advisers that do so must disclose such a fund’s existence, ensure that fee policies are disclosed and avoid conflicts of interest. Failure to do so may lead to problems with examiners and agency enforcement.

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