Jumping into Fall with Current Employment, Regulatory, and Governance Updates

Our monthly newsletter for multi-hat-wearing C-suite leaders covers the latest and greatest insights across the hedge fund industry.

Industry Insights:

1. Focus on Employment. The current “war on talent” in addition to the various regulatory changes from state legislature has led funds to thinking about how they can navigate the current hiring and employment environment. Some top of mind items in this the everchanging landscape include:
   • State Guidance: Salary Transparency. New York and Illinois have both recently passed state legislature around salary transparency. The NYS law applies to positions that will not be physically performed in NY, but report to a supervisor, office or other worksite located in NY. Despite this, many clients have opted for a uniform versus patchwork approach across their organizations.
   • Hybrid for Talent. Where most industry organizations have evolved to a more “back in the office model,” some flexibility component is still part of the equation from a hiring and retention perspective. Return to office amenities such as wellness rooms, health centers, and commuter benefits are continuing to be leveraged.
2. Enhancing Short Sale Disclosure. This October, the SEC finalized Rule 13f-2 and related Form SHO (Fact Sheet). This rule requires managers to submit monthly reports around short positions and short sales to the SEC. Funds will also have to produce calculations around “gross short positions” which are over the thresholds identified in the rule. The SEC will then aggregate the shorting data based on a monthly average. The effective date is set for mid-December.
   • Potential Solutions: Compliance and Software. The rule places additional reporting requirements, and operational considerations on managers. Questions remain around how the data will be aggregated however this will likely be different from the extent of reports in the EU on single name stocks. Some are considering additional compliance and software solutions for reporting and monitoring daily shorting.
3. Cayman Regulatory Update. In April, CIMA released a set of rules including the Corporate Governance Rule, the Internal Controls Rule, and Statement of Guidance (SOG) which went into effect this October. These rules cover various types of businesses and many in our industry are trying to understand how they apply to hedge funds, more specifically their relationships with their board of directors and their firms governance structures.
   • Off the List. Cayman has been taking a strong stance and offering guidance around their AML/CFT policies. As of Friday, October 27th, Cayman is officially no longer on the FATF Grey List. The island is still on EU’s list however are making strides towards also being removed.
   • Getting On Board with Onshore. Overall, much of the new rule is solidifying already common industry practices. Annual conflict of interest declaration at manual board meetings is now required has been industry practice. Funds with no advisory board on the LP side will likely feel the most change.
   • Keeping Compliant. Managers can make additions to compliance manual to address issues make sure it makes sense and that it works for the fund. Additionally, they may reach out to their offshore law firms regarding the CIMA analysis required.

Please reach out to your Jefferies contact for more information on any of the topics above.

Client Corner:

CRM Systems. In the current fundraising environment, many groups are exploring how a CRM system can help  them stay organized and create efficiencies in the marketing processes. There has been an increased preference for systems that cater to the alternative asset industry rather than the more generalist players in the space. These groups can often provide more specific fields and reporting which are specific to the hedge fund industry leading to less time spent on customizations. Additionally, we are seeing an increase in new launches consider this a day one initiative.

Spotlight on Content and Events:

Jefferies Capital Intelligence 2023 Roundtable Series | Wednesday November 1st, 2023 at 11:00AM EST

Join us for a Virtual Fireside Chat with Amy Flikerski, Managing Director, Head of External Portfolio Management, CPP Investments. Hear a comprehensive update on the external portfolio management program at CPP Investments, the role of hedge funds in the portfolio, and strategic initiatives for 2024 and beyond. This conversation will be moderated by Emily Corzel, Senior Vice President, Jefferies Capital Intelligence. Click here to register

Three Issues Alternative Fund Decision Makers Should Think About

What is on decision-makers’ minds as they prepare for 2024? Three major issues:

• Our new era of regulatory scrutiny.
• Major shifts in counterparty and third-party management.
• The new launch landscape.

Hear more from Shannon Murphy, Head of Strategic Content at Jefferies.

Interesting Service Provider Reads: Highlighting Topical Content from Industry Leaders

Beyond Alpha – The Impact of Cayman Regulatory Changes

Centaur – Operational Due Diligence: What the COO Needs to Know

Maples Group – Cayman Islands Removed from FATF Grey List

Seward & Kissel – The Seward & Kissel 2022/2023 Hedge Fund Side Letter Study

Sidley – ”Get Shorty – The Sequel”: SEC Implements New Disclosure of Short Positions and Reliance on Bona Fide Market Making Exception

Vigilant – 2024 SEC Division of Examinations Priorities | Key Takeaways

Jefferies Prime Services Contacts:

DISCLAIMER

THIS MESSAGE CONTAINS INSUFFICIENT INFORMATION TO MAKE AN INVESTMENT DECISION.

This is not a product of Jefferies’ Research Department, and it should not be regarded as research or a research report. This material is a product of Jefferies Equity Sales and Trading department. Unless otherwise specifically stated, any views or opinions expressed herein are solely those of the individual author and may differ from the views and opinions expressed by the Firm’s Research Department or other departments or divisions of the Firm and its affiliates. Jefferies may trade or make markets for its own account on a principal basis in the securities referenced in this communication. Jefferies may engage in securities transactions that are inconsistent with this communication and may have long or short positions in such securities.

The information and any opinions contained herein are as of the date of this material and the Firm does not undertake any obligation to update them. All market prices, data and other information are not warranted as to the completeness or accuracy and are subject to change without notice. In preparing this material, the Firm has relied on information provided by third parties and has not independently verified such information. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. The Firm is not a registered investment adviser and is not providing investment advice through this material. This material does not take into account individual client circumstances, objectives, or needs and is not intended as a recommendation to particular clients. Securities, financial instruments, products or strategies mentioned in this material may not be suitable for all investors. Jefferies is not acting as a representative, agent, promoter, marketer, endorser, underwriter or placement agent for any investment adviser or offering discussed in this material. Jefferies does not in any way endorse, approve, support or recommend any investment discussed or presented in this material and through these materials is not acting as an agent, promoter, marketer, solicitor or underwriter for any such product or investment. Jefferies does not provide tax advice. As such, any information contained in Equity Sales and Trading department communications relating to tax matters were neither written nor intended by Jefferies to be used for tax reporting purposes. Recipients should seek tax advice based on their particular circumstances from an independent tax advisor. In reaching a determination as to the appropriateness of any proposed transaction or strategy, clients should undertake a thorough independent review of the legal, regulatory, credit, accounting and economic consequences of such transaction in relation to their particular circumstances and make their own independent decisions.

© 2023 Jefferies LLC

Clients First-Always ^SM Jefferies.com