Areas of Focus: Regulatory Environment, Marketing, and ODD

Industry Insights:

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Industry Insights:

1. Top of Mind: Regulatory Line Items. Funds continue to try and keep track of the ever-changing regulatory landscape. We are fielding concerns regarding continued updates from the SEC around the new private funds rule, as well as increased cyber security safeguards being put in place in the US and across the pond.
   • Private Funds Rule. The rule has different effective dates for funds managing more than $1.5bn AUM (as of Sept 2024) and for those managing less than $1.5bn AUM (as of March 2025). Advice to managers is to start working with counsel to adapt their policies and procedures as soon as possible given there is a long road to compliance. Annual disclosures will have to be made to all investors in the same private fund. Although the SEC has not defined the methods of disclosure, we are seeing an increase in the importance of data room capabilities to centralize important documents.
   • Cyber Security. Regarding the SEC’s cyber security rule, managers will have a timeline to file within 48 hours and report any accidents within 72 hours. Although the rule was put into effect for many managers in December of 2023, smaller reporting companies will have until June 2024, at the latest, to comply.
     • Cyber In the EU. Managers are working to comply with the EU’s Digital Operational Resilience Act (DORA). DORA entered into force in January 2023 and the terms will apply as of January 2025. March 2024 was the EU’s deadline for public consultation on the policy products aimed to standardize the regulation’s requirements. As it stands, DORA requires AIFMs and ManCo’s to classify or report all IT and cyber security related incidents and contract an external firm to conduct comprehensive resilience testing on their IT and cyber security systems. DORA also requires these financial entities to manage their Information and Communications Technology (ICT) service provider risk, with the provisions placing an emphasis on contractual relationships. AIFMs are encouraged to compile a register of their existing ICT service provider contracts to ensure compliance with DORA.
2. Marketing Focus: An Era of Digital Transformation in Marketing & Regulatory Updates. Some groups are starting to explore creative new ways to market and improve workflows. On top of that, the evolution of the regulatory environment has many focused on continued guidance towards the new marketing rule and staying compliant.
   • AI & Data Analysis Technologies in Marketing. The team has been fielding questions from managers who are searching for ways to integrate AI tools to enhance, refine, and speed up their marketing efforts. While AI tools cannot replace the human creativity and connection involved in a fund’s marketing process, they can be used in the beginning stages as a starting point for drafting materials, and they can also speed up research processes by succinctly aggregating information. In addition, many marketers are also focused on using other data analysis technologies to gain better insights into their target audience’s needs. A new study published by EXT. Marketing found that almost half of marketer’s plan to focus on implementing new data analysis technology in their processes this year. Video-based marketing is also gaining in popularity, with the EXT. Marketing report finding that people have a preference towards visual aids, including easy to digest scannable content and short videos that can be consumed quickly.
   • Additional Guidance: New Marketing Rule Updates. Last month, the SEC released updates to the new marketing rule, which gave managers additional guidance on requirements for calculating net and gross performance. Managers are encouraged to reach out to their legal counsel with any questions to ensure they will be in compliance . Although the law itself has not changed, there was an increase in requests on methodology for performance calculations prior to this FAQ.
3. Trends in ODD. Throughout  conversations with various ODD teams on their current areas of focus across the industry, many have emphasized challenges around talent retention and acquisition, the increased importance of having efficient IT systems, and the need to more closely scrutinize vendor relationships.
   • Talent. As the biggest funds continue to grow in size, the war for talent across both the investment and non-investment teams continues. This has been forcing managers to think differently about how they aim to retain and attract key workers. Many funds are reporting particular difficulty in hiring for junior controller roles and, similarly, many accounting firms are having trouble retaining junior accountants. To cope, some groups are heavily investing in technologies that can help solve for this industry-wide shortage.
   • Technology. ODD teams are placing emphasis on how their managers are utilizing technology and are seeing more clients engage with software data analysis programs. The days of having all analysis on excel seems to be diminishing.
   • Vendor Due Diligence. Ensuring new vendors go through rigorous compliance is a focus, specifically as it pertains to expert networks and alternative data sources. With potential risks arising from managers’ use of AI technologies and the longstanding risks associated with utilizing third-party vendors, it is increasingly important that funds vet their technology systems and put safeguards and policies in place to respond compliantly to any breaches. There is also concern around Expert Networks and heightened diligence on transcripts received from expert networks to ensure there is not MNPI embedded.

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

Client Corner:

Women’s History Month: Numbers in Alternatives: The industry has seen an increased focus around DEI initiatives and many have been reflecting on the pivotal role diversity plays in the alternatives space. Preqin released a report this month on the status of female representation in the industry, finding that only 17% of those in senior roles at hedge funds are women. Although this is 6% higher than the proportion in 2020 and is higher than the rate across the entire alternatives industry, which sits at 15%, there are still discrepancies when compared to the broader workforce. Preqin’s report found that the proportion of female employees across all levels – junior, middle, and senior – appears lower in the alternatives industry overall. As Women’s History Month comes to an end, it is important to continue to create a workplace culture that allows for diversity of thought and ideologies.  

Spotlight on Content and Events:

Launch 2025. This series of video, audio, and written content explores critical questions that should be top of mind for alternative fund founders and some answers that can help build a successful launch. It includes six episodes that explore the critical questions that need to be top of mind for every alternative fund founder in the mid-2020s and some answers that can help build a more successful launch such as: “Who do you hire first?” and “What is this going to cost you?”. VIEW HERE

AI FAQ’s: As the industry makes strides in understanding how AI tools may be able to work for them we are fielding questions from managers and investors. This piece answers some of the most frequently asked questions around AI. It also discusses recent trends and themes across the hedge fund industry regarding AI and its use cases. Reach out to the Jefferies consulting team to discuss the below:

• What is AI?
• How are manager using AI?
• How are investors thinking about AI?
• What compliance considerations should AI users keep in mind?

Interesting Service Provider Reads: Highlighting Topical Content from Industry Leaders

EisnerAmper – A Comprehensive Outlook on Hedge Funds in 2024

EXT. Marketing – Top Trends in Financial Marketing in 2024

Schulte Roth & Zabel – Marketing Rule FAQ – Impact of Subscription Lines of Credit on Presentation of Net IRRs

Sidley – Enforcement is on the Rise Against Non-Compete Agreements. Is Your Business Ready?

SS&C – Preparing for Form PF Changes as SEC & CFTC Adopt Amendments

Jefferies Prime Services Contacts:

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