Increased Focus on Compliance and Technology

Industry Insights:

Our newsletter, Jack-of-all-Reads, shares the latest and greatest insights in a brief read on a monthly basis. Please let us know of any comments or questions – we welcome and appreciate your continued partnership.

Industry Insights:

1. Cayman Regulatory Update. SinceCayman’s removal from the FATF’s Grey List, they have remained active. Please see below for two notable developments.
   • Grey List Removal. The country officially is removed from the EU’s Grey list in December 2023 after complying with various guidelines. The removals from these lists marks a step forward for the country although due diligence and maintaining a strong regulatory regime remain top of mind.
   • Beneficial Ownership Transparency Act. This bill was approved in late 2023 and is expected to go into effect in the first half of this year. The ruling will increase transparency and create a public register for the country. The largest changes include updating the definition of beneficial owner from 10% to 25% and eliminating reporting exemptions from limited partners and limited liability partners.
2. Proactive Compliance: Increased Costs and Focus. As the heightened regulatory environment persists, managers are expecting to remain focused on compliance heading into the new year.
   • Staying Ahead. The majority of firms are taking steps to be prepared for potential new rules and regulations expected to take effect this year, including the Private Funds Rule. Overall, there is a significant focus on managers starting to formulate and begin executing on a plan for becoming compliant. There is still time, but given the broad scope of the rule, it is imperative for managers to begin working with their legal counsel and compliance consultants to get the process started.
   • “Culture of Compliance” is now “Proactive Compliance.” Holding annual compliance trainings and offering ongoing education has become an industry best practice and a critical part of a successful compliance programs. Now, managers are tasked with raising the bar even further to create a culture of proactive compliance, where employees are encouraged and empowered to self report mistakes, issues, and raise flags when necessary.
3. AI Trends. The industry is still in relatively early stages of identifying and implementing all of the potential use cases for AI across the investment and non-investment sides of the business.  While leveraging AI is becoming a powerful differentiator and source of investment for some, others are hesitant to leverage it without further education. While there is no overnight pressure to start formally using AI tools, many would argue that over time, not figuring out how it might benefit your organization could become a competitive disadvantage.
   • ODD Views. ODD teams are increasingly incorporating questions about if and how manager are utilizing AI into their processes. If yes, the next layer of questions focuses on what guardrails are in place to ensure quality and accuracy of output.
   • Ways to Utilize. In conversations with our clients and industry experts, some of the key use cases within hedge fund organizations to date include: research, IR support, creation of marketing materials, and payroll.

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

Client Corner:

“Practical and Tactical”: Service Provider Landscapes. Decision-makers are spending Q1 exploring ways to increase efficiencies and strengthen partnerships across their businesses. The Business Consulting team has put together a series of pieces that outline the landscape of service providers across verticals, what has changed, and how to evaluate which providers may be a good fit for your business.  Please let us know if you’d like us to walk you through the latest, which include fund administration, trading software, RMS systems, CRMs systems, and HR firms.

Spotlight on Content and Events:

iConnections Global Alts 2024. We look forward to seeing many of our clients and industry partners in Miami this week.Please see details below for an opportunity to see our Global Head of Sales, Barsam Lakani, moderate a session on Multi-Strategy platforms.

• Multi-Strategy Platforms and the Power of Diversification. Tuesday January 30^th, 11am – Moderated by Barsam Lakani, Head of Jefferies Prime Services Sales with Jain Global, MS AIP, Davidson Kempner, and J Goldman

The Voice of Asset Owners: How Allocators Aim to Invest in the Transition 2025. With the global energy transition upon us, Asset Owners, the entities that hold and allocate capital on behalf of participants, beneficiaries, or the organization itself (including pension funds, endowments, foundations, insurance companies and sovereign wealth funds) play an important role in understanding the shape and pace of the energy transition. Understanding of how allocators view the transition is crucial in elevating the perspectives of asset managers and the broader investor community. Read Here

Interesting Service Provider Reads: Highlighting Topical Content from Industry Leaders

CBRE – Why Flex Workspace is Thriving Despite the Headlines

Citco –  2023 Q4 Hedge Fund Report – Quarterly Review

Diligence Vault – Quantifying the Value of Operational Due Diligence (ODD)

KPMG – Asset Management Industry Insights for 2024

Maples – EU Removes the Cayman Islands from EU AML List: Considerations for Clients

RQC –  Q4 2023 Quarterly Regulatory Newsletter

SS&C –  SS&C GlobeOp Hedge Fund Performance Index and Capital Movement Index

Jefferies Prime Services Contacts:

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