Please click on the Headings to read the hedge fund articles and offers.
Starting a Hedge Fund Performance Compensation - August 2016 - Increase in Qualified Client Test for Performance Fees to Registered Investment Advisers
Start up hedge fund managers should take notice that the Securities and Exchange Commission (SEC) recently adjusted for inflation the dollar-based qualification tests allowing an SEC-registered investment adviser to charge performance fees. Under the new test, compensation based on investment performance may be received only from clients that meet or exceed the new "Qualified Client Test" which has increased the net worth requirement for "Qualified Client" status from $2 million to $2.1 million, effective August 15, 2016. However, the alternative test, which is based on the client's assets under management with the adviser, was not changed and remains at $1 million under management.
How many investors can my start up hedge fund have?
You have decided that this is the time to become a start up hedge fund manager. As a start up hedge fund manager, you recently heard that you can even generally advertise your fund under legislation known as the “JOBS Act”! This means that you are now able to use radio, internet, print and other mass media to solicit the sale of your hedge fund’s securities. You understand that under the JOBS Act your investors can be only “Accredited Investors” even though your solicitations may be directed to investors who are both accredited and non accredited. But with such a pool of potential investors, what are the limits on the number of investors in a hedge fund?
The JOBS Act increased the threshold for registration under the Securities Exchange Act as a public reporting company from more than 500 shareholders to 2,000 persons where the fund has assets exceeding $10,000,000. (Section 12 (g)(1) of The Securities Exchange Act of 1934). However because most securities funds rely on the 3(c)(1) exemption from registration under the Investment Company Act, which separately limits the number of investors in a fund to not more than 100 owners, most hedge funds will not be affected.
The Startup Hedge Fund Managers Tip of the Day- Fiduciary Duties
When starting a hedge fund, the start up hedge fund manager should be aware of the special obligations that are owed investors. It is often stated that the hedge fund manager, as the investment adviser, has fiduciary obligations.
“Many forms of conduct permissible in the workaday world for those acting at arm’s length are forbidden by those bound by fiduciary ties. A fiduciary is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.” See Meinhard v. Salmon,164 N.E. 545, 546 (N.Y. 1928).
THESE FIDUCIARY DUTIES INCLUDE THE DUTY OF:
FULL DISCLOSURE. An adviser must provide full disclosure of all facts material to the engagement of the adviser. Some of the principal disclosures include:
- Conflicts of Interest.
- Disciplinary Events and Precarious Financial Condition. The SEC requires a registered adviser to disclose to clients and prospective clients material facts about financial condition of the adviser that is reasonably likely to impair the adviser’s ability to meet contractual commitments to clients; and certain disciplinary events of the adviser (and certain of its officers) occurring within the past 10 years, which are presumptively material.
PROVIDING SUITABLE ADVICE.
HAVING REASONABLE INDEPENDENT BASES FOR INVESTMENT RECOMMENDATIONS.
OBTAINING BEST EXECUTION. Where an adviser has responsibility to direct client brokerage, it has an obligation to seek best execution of clients’ securities transactions. An adviser must seek to obtain the execution of transactions the most favorable to the client under the circumstances and considering the full range and quality of a broker’s services.
PROXY VOTING IN THE BEST INTEREST OF THE CLIENT. The SEC has stated that an investment adviser authorized to vote client proxies has a fiduciary duty to clients to vote the proxies in the best interest of its clients and cannot subrogate the client’s interests to its own.
Starting a Hedge Fund Tip of the Day- Performance Compensation
What the startup hedge fund manager needs to know. Startup hedge fund managers should appreciate the difference between compliance with the “Accredited Investor” requirements under Regulation D and the “Qualified Client” requirements under the Investment Adviser Act’s Rule 205-3 which permits the payment of performance compensation. Section 205(a)(1) of the Investment Advisers Act generally restricts an investment adviser from entering into, extending, renewing, or performing any investment advisory contract that provides for compensation to the adviser based on a share of capital gains on, or capital appreciation of, the funds of a client. Congress restricted these compensation arrangements (also known as performance compensation or performance fees) in 1940 to protect advisory clients from arrangements it believed might encourage advisers to take undue risks with client funds to increase advisory fees. Congress subsequently authorized the Commission to exempt any advisory contract from the performance fee restrictions if the contract is with persons that the Commission determines do not need the protections of those restrictions. The Commission adopted rule 205-3 in 1985 to exempt an investment adviser from the restrictions against charging a client performance fees in certain circumstances;
When starting a hedge fund, having accredited investors is critical the startup hedge fund’s launch. Ths is especially important in light of the lifting of general advertising restrictions under the recent Jobs Act legislation. However, of equal importance to the start up hedge fund manager is ability to receive the performance or incentive compensation. The start up hedge fund manger should appreciate that it is possible to have all accredited investor and still not be able to receive performance compensation if the investors do not meet the qualified client requirements of the Investment Adviser Act Rule 205-3. Generally, a Qualified Client is a natural person who immediately after entering into the contract has at least $1,000,000 under the management of the investment adviser one who the investment adviser reasonably believes, immediately prior to entering into the contract, either has a net worth (together, in the case of a natural person, with assets held jointly with a spouse) of more than $2,000,000. For purposes of calculating a natural person’s net worth the person’s primary residence must not be included as an asset.
Startup Hedge Fund Manager Tip of the Day - Code of Ethics
If you are starting a hedge fund and are registering as an investment adviser you should make sure that you have a written code of ethics. The SEC requires that all advisers registered with the SEC must adopt and enforce a written code of ethics reflecting the adviser’s fiduciary duties to its clients. Start up hedge fund managers will find it a useful operational and compliance tool. The startup hedge fund manager should consider SEC’s guidance as applicable to state registered funds as well. The SEC has stated that, at a minimum, the adviser’s code of ethics must cover:
- Standards of Conduct. Minimum standard of conduct for all supervised persons;
- Compliance with Federal Securities Laws. Require supervised persons to comply with federal securities laws;
- Personal Securities Transactions. Require each of an adviser’s access persons to report his securities holdings at the time that the person becomes an access person and at least once annually thereafter and to make a report at least once quarterly of all personal securities transactions in reportable securities to the adviser’s CCO or other designated person;
- Pre-approval of Certain Securities Transactions. Require the CCO or other designated persons to pre-approve investments by the access persons in IPOs or limited offerings;
- Reporting Violations. Require all supervised persons to promptly report any violations of the code to the adviser’s CCO or other designated person;
- Distribution and Acknowledgment. Require the adviser to provide each supervised person with a copy of the code, and any amendments, and to obtain a written acknowledgment from each supervised person of his receipt of a copy of the code; and
- Recordkeeping. Require the adviser to keep copies of the code, records of violations of the code and of any actions taken against violators of the code, and copies of each supervised person’s acknowledgment of receipt of a copy of the code.
Startup Hedge Fund Manager's Tip of the Day- Exemptions from Investment Adviser Registration For CTA
You are a startup hedge fund manager and primarily, your fund will trade futures; but you may also trade equities. You are registering as a Commodity Pool Operator, functioning as Commodity Trading Advisors. The next question, what about registration as an investment adviser? The SEC takes the positions that generally an exemption from registration is available to any adviser registered with the CFTC as a commodity trading advisor that advises a private fund, provided that the adviser must register with the SEC if its business becomes predominantly the provision of securities-related advice.
Startup Hedge Fund Manager's Tip of the Day, Diminimis Exemption and CPO Registration
You are starting your hedge fund to trade securities, but you also want to be able to minimally trade futures. As a start yourt hedge fund, you expect that in the execution of your hedge fund’s trading strategy, the futures component will be slight. As such, it may not be necessary to register as a Commodity Pool Operator. Under these circumstances, start up fund managers should consider taking advantage of the CFTC’s “Deminimis Exemption.”
Start up hedge fund managers should be aware that, generally, the hedge fund operator may claim an exemption from registration as a commodity pool operator under CFTC Rule §4.13(a)(3), the so called “Deminimis Exemption.” So called, because at all times, the hedge fund must meet one or the other of the following tests with respect to its commodity interest positions, including positions in security futures products, whether entered into for bona fide hedging purposes or otherwise: (A) The aggregate initial margin, premiums, and required minimum security deposit for retail forex transactions required to establish such positions, determined at the time the most recent position was established, will not exceed 5 percent of the liquidation value of the pool’s portfolio, after taking into account unrealized profits and unrealized losses on any such positions it has entered into; Provided, That in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in computing such 5 percent; or (B) The aggregate net notional value of such positions, determined at the time the most recent position was established, does not exceed 100 percent of the liquidation value of the pool’s portfolio, after taking into account unrealized profits and unrealized losses on any such positions it has entered into. To maintain the §4.13(a)(3) “Deminimus Exemption,” generally, all the hedge fund’s investors must meet the Accredited Investor requirements.
Startup Hedge Fund Managers Tip of the Day-the Incubator Fund
You have been successfully trading you own personal account for almost nine months and now you are thinking about starting your hedge fund. You know that starting a hedge fund is an expensive undertaking and you are looking for less expensive way to start a hedge fund with out actually starting a hedge fund. You believe the answer may lie in the so called “incubator fund.”
I find the so called “incubator fund” a very inefficient process. In my view, if you have confidence in your trading strategy and your ability, you should simply be prepared to do a complete hedge fund launch. Typically when one undertakes the so called “incubator fund” process, only one entity is formed. No disclosure documents or investor related filings are completed. The idea of the so called “incubator fund” is that you get a track record with out spending a lot of money on a complete launch. In my view, this theory is flawed because it assumes that the fund will be unsuccessful. Rather, I prefer to assume that you have tested your investment policies sufficiently to give you the confidence to properly launch a hedge fund. Any way, if the “incubator fund” is successful, then what happens is that after three months, your friends come to you and tell you they want to invest in the fund. Unfortunately you must say, “I am sorry, I am unable to take your money now because I have not finished the registration process; or I haven’t finished the formation of related entities, etc. Maybe next month.” Now, let’s look at what has happened. On your first opportunity to accept capital, you have to tell the investor that you can’t accept the investment in your fund because you have not completed the legal requirements. You just turned down money because you didn’t complete what is required! I ask you, does that make you look like a “professional”? We know the answer to that one. In my view, if you do not have the confidence in your investment strategy to launch the fund properly at this time, that means that this is not the right time for you to launch the fund and that you need more experience, research or development of the investment/trading strategy to allow you the confidence to undertake a proper launch your hedge fund.
Startup Hedge Fund Manager's Tip of the Day, Performance Compensation.
You are starting your hedge fund and you have been talking to family, friends and business associates about your proposed start up hedge fund. Many start up hedge fund managers are aware of the “accredited investor” standard and realize the that the private offering can accept up to 35 non accredited purchasers (as long as the fund is not intending to engage in general advertising under Rule 506c) and that any additional investors must be “accredited investors” as defined in Regulation D. However the start up hedge fund manager starting a securities hedge fund also needs to be aware that in addition to the accredited investor threshold, that for the fund manager to receive an incentive fee or allocation from the investor account, the investor must be a “qualified client” as provided by Rule 205-3 under the Investment Advisers Act of 1940 or as adopted or as otherwise be provided under applicable state laws and regulations.
Section 205(a)(1) of the Investment Advisers Act generally restricts an investment adviser from entering into, extending, renewing, or performing any investment advisory contract that provides for compensation to the adviser based on a share of capital gains on, or capital appreciation of, the funds of a client. Congress restricted these compensation arrangements (also known as performance compensation or performance fees) in 1940 to protect advisory clients from arrangements it believed might encourage advisers to take undue risks with client funds to increase advisory fees. Congress
subsequently authorized the SEC to exempt any advisory contract from the performance fee restrictions if the contract is with persons that the SEC determines do not need the protections of those restrictions. The SEC adopted rule 205–3 in 1985 to exempt an investment adviser from the restrictions against charging a client performance fees in certain circumstances. The rule, when adopted, allowed an adviser to charge performance fees if the client had at least $500,000 under management with the adviser immediately after entering into the advisory contract (‘‘assets under- management test’’) or if the adviser reasonably believed the client had a net worth of more than $1 million at the time the contract was entered into (‘‘net worth test’’) In 2011, the SEC revised the threshold of the assets under- management test to $1 million, and of the net worth test to $2 million.
Starting a Hedge Fund Tip of the Day - The De Minimis Holdings Exception to ERISA
You’re thinking about starting your own “boutique” hedge fund. You have been working in the financial industry for a number of years; successfully trading stock options for your own account using your proprietary trading system. You have many business connections that would direct their company’s employee benefit plans to be investors in your start up hedge fund and this would allow you to start your hedge fund with significant assets. However you have also heard that you need to avoid having ERISA (and ERISA/IRA) investment that would constitute 25% or more of your fund’s assets because doing so would make the hedge fund manager a plan fiduciary to the employee benefit plan and the hedge fund. Having less than 25% would be considered “De minimis” holdings, which is the principal exception relied upon by most hedge fund managers.
One reason (of many) why the hedge fund manager may not want to be considered a plan fiduciary of his friend’s company employee retirement plan is that Section 404(a)(1)(c) of the Employee Retirement Income Security Act of 1974 (as amended), provides, inter alia, that the fiduciary of the plan is under the duty to diversify investments in order to reduce the potential of a large loss, unless under the circumstances it is clearly prudent not to do so. Plan fiduciaries are required to act in accordance with the documents governing a plan to the extent not inconsistent with the terms of ERISA. The fund manager may not be able to fulfill this obligation under the fund’s trading strategy.
Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries.
These responsibilities include:
- Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
- Carrying out their duties prudently;
- Following the plan documents (unless inconsistent with ERISA);
- Diversifying plan investments; and
- Paying only reasonable plan expenses.
The Start up Hedge Fund Manager’s Tip of the Day
You are getting some information for your start up hedge fund and you have been talking to brokers and consultants. The furthest thing from your mind is tax disclosures. However, as the start up hedge fund manager you need to be aware of some of the nuances that require further inquiry. In doing so, don’t forget to think about the Affordable Care Act. It will impact your investors with Medicare Contribution Tax on Unearned Income. For taxable years beginning after December 31, 2012, a 3.8% Medicare tax will generally be imposed on the net investment income of individuals, estates and trusts. “Net investment income” generally includes the following: (1) gross income from interest and dividends other than from the conduct of a nonpassive trade or business, (2) other gross income from a passive trade or business and (3) net gain attributable to the disposition of property other than property held in a nonpassive trade or business. A significant portion of the income that the hedge fund derives may constitute net investment income.
The Start Up Hedge Fund Manager’s Tip of the Day
You have been spending your waking hours at your computer buying and selling stock through your on line broker. You have developed your own trading strategy and you have been successfully trading through your broker. After much deliberation, you decide that you are now ready to start up your hedge fund. However, the start up hedge fund manager needs to consider more than just the cost of execution when selecting a broker. One common error is using the broker that only provides retail customer “settlement date” statements and does not provide statements of realized and unrealized gains and losses. Although “settlement date” statements are fine for the individual retail customer managing his or her own account, it is an impediment to the professional hedge fund manager. The start up hedge fund manager quickly learns that for tax purposes and to properly account and report to investors, not providing monthly statements realized and unrealized gains and losses; and, providing only “settlement date” information is insufficient.
The Start up Fund Manager’s Tip of the Day: you must insist that the hedge fund’s broker provide the hedge fund with monthly information on a “trade date” basis and provide monthly “statements of realized and unrealized gains and losses.”
Startup Hedge Fund Alert!
Startup Hedge Fund Managers need to be aware that presently (October 2013), Crowdfunding offerings are not yet legally permitted and will not be permitted until the SEC issues regulations allowing it. When it does become legal, companies will be able to raise money from both accredited and non-accredited investors, but there will be limits on the amount each investor can invest, and a cap on the overall amount all investors can invest during any 12 month period. No advertising will be allowed. Companies that “Crowdfund” will have to use a registered securities broker or “registered funding portal” to offer their securities. These limitations make “Crowdfunding” a less likely option for the startup fund manager.
STARTING A HEDGE FUND
If you are starting a hedge fund, contemplating a hedge fund startup or recently launched a hedge fund, you probably have heard that as of September 23, 2013 SEC rules allowing for general solicitation that go into effect. For the start up hedge fund, general solicitation of the sale of interests will be allowed for private securities offerings, provided:
- They accept only accredited investors;
- They take reasonable steps to verify the accredited investor status of their investors; and
- They check a box on their Form D indicating that they generally solicited.
If the start up fund manager wants to generally advertise there is presently no requirement to file anything in advance of generally soliciting. The current rule requiring a Form D to be filed within 15 days of the first sale of securities will remain in effect until amended. Under Rule 503 of Regulation D, an issuer offering or selling securities in reliance on Rule 504, 505 or 506 is required to file a notice of sales on Form D with the SEC for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering.
Start up Hedge Fund Managers Launching Forex Hedge Funds
Recently a start up forex hedge fund manager located in Canada inquired, stating that he would like to deal strictly with US persons, have offices in Canada and select a forex broker in Switzerland who is not registered with the National Futures Association (NFA), Commodity Futures Trading Commission (CFTC) as a Futures Commission Merchant/Retail Foreign Exchange Dealer (FCM/RFED).
In commenting on this we note that under these circumstances, there are a number of considerations that the startup hedge fund manager intending to launch such a forex fund should consider.
Read More about Start up Hedge Fund Managers Launching Forex Hedge Funds
Amendments to Rule 506 and the Startup Hedge Fund Manager
On July 10, the SEC adopted some amendments to Rule 506 permitting private equity funds, hedge funds and venture capital funds to use general advertising and solicitation when offering and selling interests in a fund (the “Amendments to Rule 506”). Amendments to Rule 506 will be effective 60 days after publication in the Federal Register.
Private funds relying on the Amendments to Rule 506 and Startup hedge fund managers intending to rely the Amendments to Rule 506 are cautioned that may only admit investors that are “accredited investors” and must take “reasonable steps to verify” that the investors are accredited investors.
Startup hedge fund managers are cautioned that they must take “reasonable steps to verify” that investors are accredited investors. Under the Amendments to Rule 506, it is not sufficient to rely solely on an investor’s representation that the investor is an accredited investor. The determination of what constitutes “reasonable steps to verify” the accredited investor’s status is based upon an objective assessment by the fund’s manager. The Amendments to Rule 506 contain a nonexclusive list of methods that a fund manager may use to verify that a natural person investor is an accredited investor.
Read More about Amendments to Rule 506 and the Startup Hedge Fund Manager
Starting a Hedge Fund as a Private Fund Adviser
When starting a hedge fund there are a number of investment adviser consideration that the fund manager should consider. For example, does the “boutique” manager starting the hedge fund need to register with the SEC? Does the manager starting the hedge fund need to register with the state as an investment adviser? Are there exemptions from registration that might apply to the manager starting the hedge fund? When reviewing the sources of potential initial investment, does the kind of investors have an impact on manager’s registration? If the start up hedge fund manager accepts investment from nonaccredited how does this impact investment adviser registration?
The Private Adviser Exemption at the SEC level provides for exemptions from registration for advisers to “private funds.” This exemption applies to an issuer fund that would be an investment company under the Investment Company Act, but for section 3(c)(1) or section 3(c)(7) of the Act. Hedge fund managers intending to utilize the Private Fund Adviser exemption from registration as an SEC investment adviser may not have more than $150 million of assets under management.
Read More about Starting a Hedge Fund as a Private Fund Adviser
Hedge Fund Private Adviser
The Private Fund Adviser Exemption, something to consider if you are a start up hedge fund manager or thinking about starting a hedge fund.
New hedge fund startup managers and persons thinking about starting a hedge fund need to consider the new SEC rules implementing changes to the Investment Advisers Act of 1940, which may require registration for many previously unregistered advisers, such as advisers to private funds, who may have to register with the SEC or one or more state regulators absent an exemption from registration.
Many start up hedge fund managers will still be able to qualify for an exemption from registration at the SEC and the state level. New SEC regulations provide an exemption from registration to any investment adviser that acts solely as an adviser to private funds and that has assets under management in the United States of less than $150 million; the so called “private fund adviser exemption.” Advisers with assets between $100 million and $150 million (“exempt reporting advisers”) although exempt from registration, are required to report to the SEC on Form ADV which serves as both a registration and reporting form for registered advisers and as a reporting form for exempt reporting advisers.
CFTC / SEC Identity Theft Red Flag Policy One More Thing That the Manager Starting a Hedge Fund Needs to Consider.
New hedge fund mangers and persons who are considering starting their own hedge fund need to be aware that the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) amended the FAIR CREDIT REPORTING ACT (FCRA) to add the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”) to the list of federal agencies that must jointly adopt and individually enforce identity theft red flag rules. The Dodd-Frank Act provides for the transfer of rule making responsibility and enforcement authority to the CFTC and SEC with respect to the entities subject to each agency’s enforcement authority.
- First, the rules require financial institutions and creditors to develop and implement a written identity theft prevention program designed to detect, prevent, and mitigate identity theft in connection with certain existing accounts or the opening of new accounts. The rules include guidelines to assist entities in the formulation and maintenance of programs that would satisfy the requirements of the rules.
- Second, the rules establish special requirements for any credit and debit card issuers that are subject to the Commissions’ respective enforcement authorities, to assess the validity of notifications of changes of address under certain circumstances.
Read More about CFTC / SEC Identity Theft Red Flag Policy One More Thing That the Manager Starting a Hedge Fund Needs to Consider.
Use of Finders When Starting a Hedge Fund
When starting a hedge fund, one of the most important matters that the start up hedge fund manager needs to think about is how the initial investment capital is raised and from whom it is raised. Generally, initial investment in the startup hedge fund comes for the investment manager’s family, friends and those individuals with whom the startup hedge fund manger has had previous business dealings. But, what happens after those friends and family sources have been exhausted? Where does the fund manager go from here? Can he/she use brokers, finders, consultants, or third party marketers? Some of the questions that the start up fund manager needs to ask in this context are:
- Can the investment manager reasonably expect that the traditional securities broker will solicit the sale of the hedge fund interests that are not a product of their firm?
- or, more importantly, would a broker have “suitable clients” to whom he or she could reasonably offer a hedge fund investment where the hedge fund has no or a limited a track record?
- Also, can the so called “finder” “consultant”, or “third party marketer,” not registered as a broker, introduce investment to the startup hedge fund and receive finder’s fees?
Read more about Use of Finders When Starting a Hedge Fund.
Private Fund Managers and General Advertising
What managers of private funds intending to use of general solicitation and advertising (general advertising) for private securities offerings made in reliance on Rule 506(c) of Regulation D need to consider.
The SEC has proposed new Rule 506(c) under Regulation D that would permit the use of general advertising, provided that:
- the issuer takes "reasonable steps" to verify that the purchasers of the securities are accredited investors;
- all purchasers of securities are accredited investors under Rule 501(a) or the issuer “reasonably believes” the investor to be an accredited investor at the time of the sale of the securities; and,
- what constitute "reasonable belief" that the investor is an "accredited investor" is based upon the objective determination of the facts and circumstances of each transaction.
A number of commentators have posited that this lack of guidance will lead to inconsistent interpretations by state securities administrators as to what constitutes the reasonable steps required to verify investor status.
Also one must take note that offerings that sell securities to non accredited investors pursuant to Rule 506 remain non-public offerings for purposes of the private fund exclusions of Sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 and could not engage in general advertising under revised Rule 506 (c) without losing either of these exclusions.
JOBS Act Legislation Allows Hedge Fund Advertising
The effect of the JOBS Act (which was enacted into law on April 5, 2012) is that private funds that are conducting offerings under Regulation D Rule 506 will be permitted to engage in general advertising, to issue press releases, to communicate information about fund offerings on publicly available web-sites and social media, and to place advertisements during the course of fund-raising, provided that, sales are made only to accredited investors. Moreover hedge funds will be able to solicit capital from investors with whom they do not have a substantive pre-existing relationship. Under the JOBS Act offerings pursuant to Regulation D Rule 506 will not be deemed "public offerings" under the "federal securities laws" as a result of general advertising or general solicitation. Thus, the JOBS Act is ultimately expected to allow a private fund relying on a 3(c)(1) or 3(c)(7) exemption to engage in general solicitation and general advertising. Read More
Private Fund Advisor Exemption
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") amends the Investment Advisers Act of 1940 (the "Advisers Act") to remove the so-called "private adviser exemption" commonly relied upon by many investment advisers to avoid registration as a registered investment adviser with the Securities and Exchange Commission ("SEC"). In its place, the SEC has recently adopted newly-formulated Rule 203(m)-1, the "Private Fund Adviser Exemption," which exempts from registration any investment advisor who solely advises qualifying funds and who has less then $150 million in assets under management ("AUM"). Such exempted advisers ("Private Fund Advisers") will remain exempt from registration with the SEC but will now be subject to certain reporting requirements under newly-adopted Advisers Act Rule 204-4. Rule 204-4 also subjects Private Fund Advisers to potential SEC examination. Additionally, the Dodd-Frank Act defines a new class of advisers, "Mid-Sized Advisers," who, prior to the enactment of the Act, were, barring exemption, required to be registered with the SEC. Regulation of these Mid-Sized Advisors has now been reallocated to the various states, giving rise to, for some advisers, the need to transition from SEC registration to state registration.
The Private Fund Adviser Exemption. To qualify as an Exempted Private Fund Adviser, an investment adviser must (1) advise only qualifying funds and (2) have less than $150 million AUM. An investment adviser seeking to avail itself of this exemption from registration cannot act as adviser to any client that is not a qualifying fund, as defined, regardless of whether such client is based in the United States or in a foreign jurisdiction. However, a U.S.-based adviser can advise an unlimited amount of qualifying funds, so long as the adviser’s total AUM, calculated in accordance with guidelines promulgated by the SEC and set forth in its newly-amended Form ADV, is less then $150 million. Read More
IRA investments in Hedge Funds
Typically, a hedge fund manager desires to include IRA investors in their fund. However, they are concerned, that in doing so, the manager and the funds assets may be subject to "Plan Asset"regulations and "Prohibited Transaction" excise tax. In considering this issue let's assume the following hypothetical facts:
- that the hedge fund is a limited partnership conducting a private offering of its securities (limited partnership interests) pursuant to Section 4(2) of the Securities Act of 1933, Regulation D and 3(c)(1) of the Investment Company Act of 1940;
- that pursuant to the agreement of limited partnership, the general partner of the limited partnership receives a performance allocation and the affiliated investment manager receives asset based compensation;
- that the hedge fund invest solely in market listed securities, including listed option contracts, and that each of the funds is a party to a prime brokerage agreement with a registered broker-dealer pursuant to which the broker may extend credit to the funds or sell securities to the funds on a principal basis;
- that a number of potential investors in the hedge funds are IRAs;
- that the assets of the hedge funds do not include "plan assets" under a regulation (the "Plan Assets Regulation") issued by the U.S. Department of Labor ("DOL"), which is controlling both for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and section 4975 of the Code; and,
- that for purposes of this analysis none of the investors in the hedge fund would be an employee benefit plan subject to ERISA.
The issue is whether the fund manager's acceptance of such IRA investments will cause the assets of the hedge funds to be considered to include "plan assets" and be subjected to the prohibited transaction excise tax. Read more
Securities and Exchange Commission guidance for determining net worth of an accredited investor with regard to Regulation D.
Section 179. Rule 215 – Accredited Investor
Question: Under Section 413(a) of the Dodd-Frank Act, the net worth standard for an accredited investor, as set forth in Securities Act Rules 215 and 501(a)(5), is adjusted to delete from the calculation of net worth the "value of the primary residence" of the investor. How should the "value of the primary residence" be determined for purposes of calculating an investor's net worth?
Answer: Section 413(a) of the Dodd-Frank Act does not define the term "value," nor does it address the treatment of mortgage and other indebtedness secured by the residence for purposes of the net worth calculation. As required by Section 413(a) of the Dodd-Frank Act, the Commission will issue amendments to its rules to conform them to the adjustment to the accredited investor net worth standard made by the Act. However, Section 413(a) provides that the adjustment is effective upon enactment of the Act. When determining net worth for purposes of Securities Act Rules 215 and 501(a)(5), the value of the person's primary residence must be excluded. Pending implementation of the changes to the Commission's rules required by the Act, the related amount of indebtedness secured by the primary residence up to its fair market value may also be excluded. Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the investor's net worth. [July 23, 2010]
Hedge Fund Private Offerings and the Prohibition Against General Solicitation
The offer and sale of securities within the United States are subject to concurrent federal and state regulation. In order to avoid the registration of securities offered to investors (e.g., interests in a domestic limited partnership or shares in an offshore corporation), the securities of hedge funds, domestic and offshore, are typically offered under the private placement "safe harbor" provisions of Regulation D or the safe harbor for offerings outside the United States pursuant to Regulation S of the Securities Act of 1933. Additionally, most states require notice filings and fees before investors may be solicited.
A hedge fund manager and any person acting on its behalf may not solicit an investment in the fund by any form of "general solicitation" or "general advertising." This includes any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.
In the case of any relationship established as a result of general solicitation or advertisement, a sufficient time must elapse between the establishment of the relationship with the potential investor and the investment in the hedge fund so that the offer will not be interpreted as being made via general solicitation or advertising.
Establish a Pre-Existing Relationship
A pre-existing substantive relationship must exist between the hedge fund manager and the prospective investor prior to any solicitation to invest in the hedge fund. Once a pre-existing relationship exists between a prospective investor and the hedge fund manager, the manager may send a confidential private placement memorandum to such investor. Federal and state securities laws generally require that a placement memorandum be delivered to all non-accredited investors. In order to reduce liability, however, the manager, including any agents acting on its behalf, should provide all prospective investors with the most recent copy of the confidential private placement memorandum when soliciting an investment in the hedge fund.
Prior to accepting an investment, the manager should have knowledge regarding the sophistication and financial condition of the prospective investor. Ordinarily, the manager will obtain knowledge of an investor's sophistication and financial condition by requiring a prospective investor to complete a questionnaire.
Using the Internet
Improper use of the Internet can expose a hedge fund and its manager to enforcement action by the SEC and jeopardize their ability to rely on the safe harbor of Regulation D or Regulation S of the Securities Act of 1933. A fundamental requirement of Regulation D and Regulation S is that there be no general solicitation or advertisement used in connection with the solicitation of an investment in a hedge fund. Hedge fund managers may not provide offering materials on a website, unless the offering materials are only provided to prospective investors who have a pre-existing substantive relationship with the manager.
Hedge fund managers establishing websites are advised to keep nominal information on the home page of a website, indicating the name of the hedge fund and requesting the viewer to provide their name and password to access additional information on any interior page. Contact information, past performance, investment strategy, experience of management and all other material specific to the hedge fund or the sponsor (assuming the sponsor is not registered as an investment adviser) should not be contained on the home page or any page that is accessible by the public. Hedge fund managers should not link any of the interior pages of their website to other websites.
A manager may supply information about the hedge fund on a third party's website if, in part, the following procedures are followed:
- The site is password protected;
- The home page of the site makes no reference to a specific hedge fund;
- The interior pages of the site are only available to prospective investors that complete a questionnaire establishing that they are "accredited investors;" and
- Prospective investors are required to wait 30 days following their qualification to access the site before investing in any of the posted funds (other than funds in which such prospective investor already has invested, has already been solicited or is already considering as an investment opportunity).
A hedge fund manager which posts information on a third party's website will not be deemed to be "holding itself out" to the public as an investment adviser if the posted information solely relates to a hedge fund and does not provide any information regarding other services or products offered by the manager.
Forex Registration Notice to Members from the NFA September 1, 2010
On September 1, 2010 the National Futures Association issued a Notice to Members ("Notice") stating that the NFA will begin accepting registration applications from forex firms and individuals on September 2.
The "Notice" further stated that any retail forex entity that does not complete the registration process by October 18, 2010 will be unable to conduct retail forex business until registration and all necessary approvals and designations are granted.* Anyone currently registered as an IB, CPO, CTA or AP that is conducting forex business, must still apply for Forex Firm or Forex AP approval.
All individuals who solicit retail off-exchange forex business or who supervise that activity must take and pass two exams. One is the National Commodity Futures Examination (Series 3) and the other is the Retail Off-Exchange Forex Examination (Series 34), a new exam focusing exclusively on forex-related questions.** Every approved Forex Firm (RFED, FCM, IB, CPO or CTA) must have at least one principal who is registered as an AP or FB and who is approved as a Forex AP.
NFA has prepared a "Registration Overview for Retail Foreign Exchange Dealers and Forex IB, CTA and CPO Applicants" that provides additional registration information. You can also find information and guidance on NFA's website. Additionally, NFA's Information Center (800-621-3570) is available from 8:00 a.m. - 5:00 p.m. CT, Monday through Friday.
* The Commodity Exchange Act was amended to require any individual acting as a forex solicitor, account manager or pool operator to register with the CFTC as Introducing Brokers (IBs), Commodity Trading Advisors (CTAs) or Commodity Pool Operators (CPOs) and become Members of NFA. Also, any Associated Person (AP) soliciting or supervising persons soliciting business on behalf of a forex firm must request approval as a Forex AP.
** Individuals who were registered as APs, sole proprietors or floor brokers (FBs) on May 22, 2008 will not need to take the Series 34 exam unless there has been a two-year gap in their registration since that date.
Some Provisions of Dodd-Frank Wall Street Reform and Consumer Protection Act That Impact Hedge Funds
PRIVATE FUND ADVISER REGULATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act eliminates the "private adviser exemption" from the Advisers Act for advisers with fewer than 15 clients* and, with some exceptions, requires advisers to private funds with $100 million or more in assets under management to register with the SEC as investment advisers. Investment advisers that are below the threshold will be subject to state registration. Registered advisers will be subject to reporting and record-keeping requirements and periodic examination by the SEC staff. Information provided by registered advisers can be shared by the SEC with the Financial Stability Oversight Council (discussed below) for assessment of systemic risk.
The Act provides exemptions for advisers who solely advise "venture capital funds" and for advisers who solely advise private funds that have assets under management in the United States of less than $150 million. Exempted advisers will still be subject to record keeping and reporting requirements to be determined by the SEC. Certain advisers to family offices, foreign private advisers and advisers to small business investment companies will also be exempt from registration.
The Act raises the assets under management threshold for federal regulation of investment advisers from $25 million to $100 million. Any investment adviser that qualifies to register with its home state and has assets under management of between $25 million and $100 million (and that otherwise would be required to register with the SEC) must register with, and be subject to examination by, such state. If the investment adviser's home state does not perform examinations, the adviser is required to register with the SEC.
ACCREDITED INVESTOR AND QUALIFIED CLIENT STANDARDS. The Act modifies the net worth standard in the definition of "accredited investor" to provide that the value of a person's primary residence is excluded from the calculation of the $1 million net worth requirement. The SEC is directed to periodically review and modify the definition of "accredited investor," as appropriate, and the GAO is required to submit a report to Congress on the appropriate criteria for accredited investor status and eligibility to invest in private funds. In addition, within one year after the date of enactment (and periodically thereafter), the SEC is required to adjust for inflation the net worth and/or asset-based qualifications applicable to a "qualified client" under the Advisers Act.
* The Advisor's Act Rule 203(b)(3) provides for an exemption from registration to an investment advisor who during the course of the preceding 12 months has fewer than 15 clients and who neither holds himself out generally to the public as an investment advisor nor acts as an investment advisor to any investment company registered under the Investment Company Act or to a company that has elected to be a business development company under the Investment Company Act.
The Uses And Benefits Of The Series Limited Liability Company Structure By Hedge Funds
The Series LLC allows the potential investor the benefit of selecting among an offering of multiple investment products and/or strategies offered by one hedge fund. Conversely, hedge funds will have the opportunity to offer multiple investment products and strategies under a single brand and thereby appeal to a wider variety of investors.
The most commonly used United States jurisdiction for the series LLC is Delaware. (In the Cayman Islands, this entity is referred to as a segregated portfolio company.) A Delaware Series Limited Liability Company provides liability protection across multiple series interests (sometimes referred to as "cells") which are insulated from cross liability arising from another series. Under the Delaware Code, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series are enforceable against the assets of such series only, and not against the assets of the company generally or any other series thereof. Classes or groups of member interests can be established having the rights set forth in the series Limited Liability Company Operating Agreement. That Agreement can designate series of members, series of managers, or series of LLC interests, each of which have separate rights and duties with respect to specific LLC property or obligations. Separate Series can own specific assets and have different managers and members. Separate Series can have different business operations. A fund manager could operate a Series LLC that would allow for multiple strategies to operate under a single identity. Thus, a Series LLC is able to offer: a commodity pool series; a securities series; a real-estate series; a distressed debt series; and the like. Each series is protected. Each series interest may have different investment managers, different fee structures, different investment limitations, and the like. Thus, the Series LLC permits separate liability insulated series within a single LLC entity.
The Operating Agreement establishes the rights and obligations of the managers and members. It may designate a series of members and managers; each series interest may have separate managers and members.
In operating a Series LLC it is necessary that separate records be maintained for each series and separate and distinct financial accounting be conducted for each series. If assets from separate series interests are commingled or records consolidated, this action may negate the protection against cross liability and thereby expose investors in one series to the losses sustained by investors in another
series. Each series should also maintain separate bank accounts, enter into contracts, notes, or other agreements in the name of the series, and fully document any transactions involving this series. Any filings on behalf of the Series LLC for a specific series should identify the specific series.
Of concern, is the fact that liability insulation and separation of assets have not yet been ruled upon by the courts. Whether or not other states or jurisdictions would recognize the legal separate of assets or insulation of liability within the Series LLC is yet to be determined. As of January 2008, the Internal Revenue Service has held that distinct series of Series LLC will generally be taxed as separate entities for federal income tax purposes although many states have not provided guidance regarding state tax issues.
Similarly, the Cayman Islands law provides for segregated portfolio companies. The segregated portfolio company separate portfolios of assets and liabilities which are separate from the general assets and liability of the company and from assets and liabilities within the segregated portfolios. The portfolios of assets are traded independently and are protected from the general liabilities of the company and those of the other segregated portfolios. The segregated portfolio company is a single legal entity. The segregated portfolio within the company is not a legal entity separate from the company. Each segregated portfolio is separately designated and must be designated as a "segregated portfolio" contract with the segregated portfolio which is executed by the company on behalf of the segregated portfolio. Directors failing to do so properly become personally liable for the liabilities of the company and the segregated portfolio. A company may pay a dividend with respect to any segregated portfolio shares whether or not a dividend is declared on any other class or series of segregated portfolio shares or any other shares. A segregated portfolio company has assets which are either general assets of the company or segregated portfolio assets. The segregated portfolio assets are the assets of the specific segregated portfolio and are the only assets available to meet the liabilities of the specific portfolio. The general assets are all other assets other than segregated portfolio assets. Directors of each segregated portfolio company must establish and maintain procedures to keep segregated portfolio assets separate from other segregated portfolio assets and general assets of the company.
As with the Delaware Series LLC, there is very little jurisprudence or case law available for interpretation of segregated portfolio companies.
Contractual Waiver of Fiduciary Duties in Limited Partnerships
Delaware Limited Partnerships provide much greater flexibility in eliminating fiduciary duties than do limited partnerships in other states. Delaware Limited Partnerships may modify and eliminate fiduciary duties of a general partner with no test of manifest unreasonableness. Limited partnerships in other states can only modify fiduciary duties (not eliminate), and those modifications are subject to the test of "manifest unreasonableness." However, all Delaware Partnerships continue to be subject to the contractual covenant of good faith and fair dealing, which may not be eliminated but the obligation can be spelled out. Furthermore, modifications (eliminations) of fiduciary duties must be clearly spelled out in the contract, or default fiduciary duties will apply.
By default, the only fiduciary duties that a Delaware General Partner owes to the partnership and the other partners are (1) the duty of care and (2) the duty of loyalty. These fiduciary duties may be limited or eliminated in the partnership agreement. However, every Delaware General Partner is also bound by an implied contractual covenant of good faith and fair dealing , which is not considered to be a fiduciary duty. A partnership agreement may not eliminate this covenant, nor may it limit liability for a bad faith breach of this covenant. The standard of performance for "good faith" may be spelled out in the agreement, but the covenant always remains and cannot be eliminated. For example, where a general partner retains "sole and absolute discretion" to deny consent to substitution of a limited partner, that discretion must nonetheless be exercised in good faith. The obligation of good faith is always affected by the terms of the agreement, because it is essentially a measure the consistency to which the general partner adheres to its contractual obligations. However, unlike the Revised Uniform Partnership Act ("RUPA"), which many states use, the modification of the good faith and fair dealing standard under Delaware Law is not subject to the test of manifest unreasonableness. Thus, substantial flexibility is built into the Delaware partnership acts that allows the partners to eliminate fiduciary duties and to restrict the obligation of good faith and fair dealing.
There are two ways in which a partnership agreement may unambiguously modify (or eliminate) fiduciary duties. The agreement can plainly state that it is modifying the general partner's fiduciary duties (e.g. "The general partner may compete with the partnership."). The other way is to cover the topic so specifically that there is no room for traditional fiduciary duties. Id. Any restriction on fiduciary duties of a general partner must be stated clearly.
LP's IN STATES OTHER THAN DELAWARE
In most states, the law applicable to limited partnerships is based on the Revised Uniform Limited Partnership Act ("RULPA"). RULPA does not identify fiduciary duties, nor does it specify whether they can be restricted or waived. The fiduciary duties of a general partner under RULPA are determined by reference to whichever Partnership Act the state has adopted: either the Uniform Partnership Act ("UPA") or the Revised Uniform Partnership Act ("RUPA").
UPA does not explicitly identify fiduciary duties, or address whether they can be waived. However, case law under the UPA indicates that a general partner is bound by the following fiduciary duties: (1) duty of loyalty, (2) care, (3) disclosure, and (4) good faith and fair dealing. Courts have upheld the ability of partners to specify by contract the degree to which their fiduciary duties may be limited, the scope of fiduciary duties, the standards for determining the scope of fiduciary duties, and the mechanisms for blessing actions that, if consent is lacking, might breach a fiduciary duty.
Under RUPA, a general partner by default owes the fiduciary duties of (1) loyalty and (2) care, and is bound by the contractual covenant of good faith and fair dealing. Section 103 of the Act specifies that the fiduciary duties and covenants may be spelled out or reduced in certain specific ways, but the reduction is always subject to the "manifestly unreasonable" test. Specifically, the partnership agreement may not reduce unreasonably the duty of care, which, like Delaware, is statutorily defined under the default rules to include only grossly negligent or reckless conduct, intentional misconduct, or knowing violation of law. In addition, partners are free to provide an agreement that identifies specific types of activities that do not violate the duty of loyalty, but only if not "manifestly unreasonable." The partnership agreement may specify a mechanism by which the partners, after full disclosure, may consent to a specific act or transaction that otherwise would violate the fiduciary duty of loyalty. The non-fiduciary duty of good faith and fair dealing also may be defined within the agreement, but it may not be manifestly unreasonable. RUPA thus leaves to the courts the task of defining the manifestly unreasonable test and the outer limits of good faith and fair dealing.
The default provisions are for the most part similar between Delaware and other states. The advantage that Delaware provides is that fiduciary duties can actually be eliminated, and there is no "manifestly reasonable test" applied to the agreement. On the other hand, fiduciary duties can be limited by agreement in other states as well (as we already do in our limited partnership agreements), but they cannot be entirely eliminated, and the limitations are subject to the "manifest reasonableness" test. Similarly, provisions spelling out the obligation of "good faith" are subject to the "manifest reasonableness test" in states other than Delaware. Thus, Delaware allows greater flexibility and is more favorable towards a partnership agreement waiving fiduciary duties. The fact that language eliminating or reducing fiduciary duties must be clear and explicit is significant. While it may help to limit liability, it may also discourage investors. In addition because the covenant of good faith (a somewhat nebulous concept) can never be eliminated in Delaware, egregious acts by a general partner acting with ill will (though falling short of fraud) may still be considered bad faith acts.
Attention Investment Advisors located in Georgia!
You must now be registered with the State of Georgia in order to conduct business. Effective July 1, 2009, the new Georgia Uniform Securities Act provides for the national de minimis standard which only exempts an investment adviser from registration if the investment adviser:
- does not maintain a place of business in the state; and
- had fewer than six resident clients during the preceding 12 months.
Are you one of the many Investment Advisers in Georgia still relying on the de minimis exemption found in the previous Georgia Securities Act (of 73') , which only required registration if the Investment Adviser, located in or out of Georgia, had six or more Georgia resident clients. If yes, contact Turn Key Hedge Funds, Inc today to get the registration process started.
House Financial Services Committee passes proposed Private Fund Investment Adviser Registration Act
The proposed Private Fund Investment Advisers Registration Act of 2009 (the "Registration Act") will have a significant impact on hedge funds. The proposed Registration Act is likely to amend several provisions of the Investment Advisers Act of 1940, as amended.
The proposed Registration Act would:
Delete the so called private investment adviser exemption from the Advisers Act Sec. 203(b); which would require most investment advisers to register with the SEC unless they are exempted or otherwise not required to register. As proposed, the Registration Act contains the following exemptions from registration:
1) the SEC may exempt from the registration requirement investment advisers to "private funds" if each of such private funds has assets under management in the United States of less than $150 million. "Private fund" is defined as an investment fund that would be an investment company under the Investment Company Act of 1940, as amended, but for the exception from that definition provided by either Sec. 3(c)(1) or Sec. 3(c)(7) thereunder;
2) the Registration Act would exempt venture capital fund advisers from the registration requirement but leaves to the SEC the tasks of defining "venture capital fund" and crafting the registration exemption for such advisers; and
3) "foreign private fund advisers" who have no place of business in the U.S. and only advise offshore funds with no U.S. investors or privately offered U.S. funds with less than $25 million in assets would be exempted from registration.
Give the SEC new authority to impose additional reporting requirements on investment advisers and to require reporting that the SEC deems to be in the public interest, necessary for investor protection or for the assessment of systemic risk. The Registration Act provides no assurances that these reports will remain confidential, and the SEC may also be required to disclose the reports to any regulatory body that oversees systemic risk.
Give the SEC enhanced rule making authority to define terms used in the Advisers Act.
The Registration Act does not require commodity trading advisors to commodity pools to register with the SEC and investment advisers whose assets under management fall below the $30 million threshold established by Advisers Act Rule 203A-1 would not be permitted to register with the SEC.
House Financial Services Committee passes proposed Private Fund Investment Adviser Registration Act
On July 30, 2009, Senator Arlen Specter introduced legislation (S. 1551) in the United States Senate that would expand federal securities fraud liability under section 10(b) of the Securities Exchange Act of 1934 (SEA) and Rule 10b-5 to entities such as law firms, accounting firms and investment banks that provide "substantial assistance" in a fraud on the investing public.
Presently the law limits fraud liability to "primary actors."Central Bank v. First Interstate Bank of Denver, 511 U.S. 164 (1994), Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. et. al, 552 U.S. 148 (2008). In the Central Bank case, the Supreme Court held that the law "prohibits only the making of material misstatement (or omission) or the commission of a manipulative act, and does not reach those who aid and abet a violation." In the Stoneridge case the Supreme court ruled that a SEA section 10(b) and Rule 10b-5 claim against Respondents for "scheme liability" was nothing more than a claim of aiding and abetting, and no private right of action exists for such claims under section 10(b) as the Supreme Court ruled in Central Bank.
The "Bailout" and Fund Manager Fee Deferrals
The "Emergency Economic Stabilization Act of 2008" (the "Act"), has as its primary purpose the stabilization of the credit markets through authorization of the Treasury Department to purchase up to $700 billion in nonperforming loans from financial institutions. The Act also includes a provision eliminating the ability of investment managers of offshore investment funds to continue to defer the taxation of the fee income they derive from the performance of investment management services for Offshore Funds.
After December 31, 2008, investment managers who provide services to Offshore Funds pursuant to investment management agreements will not be able to defer the taxation on all or a portion of the fees payable to them by the Offshore Funds. The Act effectively eliminates the ability of managers to defer their fee income derived from services performed for Offshore Funds by taxing such fee income at such time as there is no "substantial risk of forfeiture." For purposes of the Act, a "substantial risk of forfeiture" occurs only if when manager's rights to such compensation are conditioned upon the performance of substantial future services.
The Act directs the Treasury Department to issue guidance providing a limited period of time during which a deferred compensation arrangement attributable to services performed before 2009 may be amended to conform the payment date of compensation to the date the compensation is required to be included in income. Presumably, such guidance would include guidance applicable to the Manager of an Offshore Fund with a fiscal year ending on June 30 who has already made a deferral election relating to the fiscal year ending June 30, 2009.