In an interview with Private Funds Management, partners Marc Elovitz and Joseph Smith discuss regulator views on conflicts of interest and how to best deal with these issues as the fund formation climate becomes more complex. Marc and Joe also share their insights on how conflicts of interests are viewed by the SEC within the private equity space and how they are best dealt with in the industry.

Click here to read the interview.

On Aug. 25, 2016, the U.S. Securities and Exchange Commission adopted a final rule that amends Form ADV — the filing that investment advisers registered with the SEC use to apply for and maintain their registration and that exempt reporting advisers utilize to claim and maintain their registration exemption. The SEC also amended its books and records rule to require more documentation with respect to performance reporting records. While these amendments will go into technical effect in this calendar year, the SEC has delayed the substantive effectiveness of the amended ADV and the new books and records requirements until October 2017. This means that many advisers will not implement these new requirements until their first quarter 2018 annual updating amendment.

Click here to read this article, which discusses the effects of the SEC’s adoption of a final Form ADV amendment on private fund advisers.

After the financial crisis, 2011 saw a revival in the United States of offerings of collateralized loan obligations (CLOs), one of the structured credit products that proved resilient during the financial crisis. CLOs primarily invest in loans to non-investment-grade commercial and industrial enterprises and, unlike collateralized debt obligations (CDOs), which invest in mortgage-backed securities, CLOs suffered few events of default and still fewer liquidations that resulted in losses to investors.

Click here to read the article in which partner Craig Stein discusses the evolution of CLOs and changes in regulations affecting CLOs since the financial crisis.


On July 12, 2016, the U.S. Department of Justice (the “DOJ”) announced that investment firm ValueAct had entered into a consent decree in which it agreed to pay $11 million to settle charges that two of its affiliated funds acquired large stakes in Halliburton Company (“Halliburton”) and Baker Hughes Incorporated (“Baker Hughes”) in violation of the notification and waiting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The DOJ asserted that ValueAct was required to make an HSR Act filing, but ValueAct had asserted that no such filing was required due to the “investment-only” or so-called “passive investor” exemption. On the heels of such announcement, the Securities and Exchange Commission (the “SEC”) provided clarification that it does not view the inability to utilize the “passive investor” exemption under the HSR Act as equivalent to an investor not being considered “passive” for purposes of Section 13(d) under the Securities Exchange Act of 1934 (the “Exchange Act”).

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As we move deeper into another election season, investment advisers should consider refreshing their efforts to comply effectively with the Securities and Exchange Commission’s rule on their political contributions — known as the pay-to-play rule. Although it’s more than five years old, Rule 206(4)-5 has not been easily integrated into many advisers’ compliance programs. If your firm allows its covered persons to make political contributions, there is not one simple step to avoid triggering Rule 206(4)-5. A carefully designed program of training, pre-approval and quarterly certifications can help reduce the risk.

Click here to read this article, in which SRZ partner Marc E. Elovitz shares 10 tips for compliance that can make the process more effective.

On April 7, 2016, the Securities and Exchange Commission approved the Financial Industry Regulatory Authority’s proposed amendments to NASD rule 1032 (Categories of Representative Registration). These amendments will require FINRA members to register associated persons who are primarily responsible for the design, development or significant modification of “algorithmic trading strategies” (or for the day-to-day supervision or direction of such activities) as “Securities Traders.”

Click here to read more.

Over the past year, there have been regulatory actions that implement or modify the risk retention regulations and requirements applicable to collateralized loan obligations (“CLOs”) in both the U.S. and the EU. In light of these regulatory changes, CLO managers have developed legal structures to enable them to comply with risk retention requirements.

Click here to read this chapter, published in the 2016 edition of The International Comparative Legal Guide to: Securitisation, in which SRZ partners Craig Stein and Paul N. Watterson, Jr. review the U.S. and EU risk retention requirements and discuss the challenges facing CLO managers in complying with the requirements. SRZ partner Anna Maleva-Otto assisted in the preparation of this chapter.

The Securities and Exchange Commission issued a release on Dec. 11, 2015 proposing a new rule that would establish new limitations on the use of derivatives by registered investment companies and business development companies under the Investment Company Act of 1940. Proposed Rule 18f-4 would also regulate other trading practices of such funds, including short sales of securities, that are deemed to involve the issuance of “senior securities.” Hedge funds and other private investment funds would not be subject to the rule.

Click here to read this article, in which SRZ partners Kenneth S. Gerstein and John J. Mahon and special counsel Pamela Poland Chen and associate Karen Spiegel review the requirements of the proposed rule, which is intended to provide a clearer regulatory framework applicable to the use of derivatives by regulated funds.

The SEC’s recent release proposing the adoption of new Rule 18f-4 under the Investment Company Act of 1940 is the culmination of years of focus on the concept of hidden leverage. Indeed, the SEC’s Concept Releases date back to 2011. The SEC is particularly concerned about funds where the risks of leverage may not be apparent and is of the opinion that derivatives-related exposures should be viewed as leverage. The SEC’s initial proposal might not be ideally suited to meeting the agency’s stated aims and could have a number of unintended consequences.

Click here to read this article, in which SRZ partner John J. Mahon talks to The Hedge Fund Journal about eight implications of the SEC’s recent proposal.

SRZ on Aug. 11, 2015 submitted comments to the U.S. Securities and Exchange Commission on the agency’s proposed amendments to Form ADV and the corresponding rules under the Investment Advisers Act. SRZ’s comment letter addresses confidentiality concerns about the proposal’s obligation for advisers to make detailed disclosure of proprietary information regarding separately managed accounts. The firm also makes suggestions regarding the SEC’s proposal to incorporate “umbrella registration” into Form ADV, particularly for foreign advisers.

SRZ’s comment letter was submitted by the firm’s regulatory & compliance practice, which is carefully following the SEC’s development of rules affecting advisers to private funds and SMAs.

Click here to read the comment letter.