Our services Hedge and open-ended funds law

Hedge and open-ended funds law

At MJ Hudson, investment funds and corporate matters are our day job.

Our role is to simplify to the greatest extent possible, what is a complex exercise. MJ Hudson’s hedge and open-ended funds law team is best placed to guide you through the launch of your fund. We can tune out the background noise, leaving you to focus on your task – making money. We are here to help you reach for commercial goals, whether that is starting a new fund, running your existing fund, investing in funds, raising new money, or safely navigating choppy waters.

Our team’s depth of knowledge is as great as the largest firms, having gained years of experience from US “Magic Circle” and “Silver Circle” city law firms leading and advising both managers and investors on the formation, and investment in hedge and open-ended funds across all major investment strategies. Around one third of our lawyers have worked in-house within asset management firms. All of our senior lawyers have substantial pre and post-crash experience meaning they are well versed in a broad variety of issues facing fund managers throughout the life cycle of the fund, which we use to promote our clients’ interests to the fullest extent.

We combine this with our unique multi-service offering, which allows us to cater for your needs beyond legal advice alone. We are the premier asset management consultancy, combining expert advice, transaction management and deep market knowledge to promote our clients’ best interest and their commercial success. Our ‘structure and jurisdiction agnostic’ team serves clients spanning fund managers, investors, investee companies and large corporates. Our representative of the breadth of experience of our hedge fund law team.

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What we do

Corporate governance and ESG

Hedge and open-ended funds are often, unfairly, associated with short-term profiteering and speculation. What has become increasingly obvious post-crash is the role hedge funds play (and can play) in global capital markets.

Hedge and open-ended funds are increasingly considering environmental, social and governance (“ESG”) factors in their investment decision-making, and there is a much broader question as to whose responsibility it is to regulate society’s moral compass.

It does, however, raise a valid point. In the words of Laurence Fletcher of the Financial Times, that point is: “how to do well, from doing good”.

We advise on ESG policies and associated legislation. Increasingly, hedge and open-ended funds are obliged to publish their policies on engagement with the company’s they invest in (see, for example, the second Shareholder Rights Directive of the EU). Whilst some may consider this burdensome, such considerations have become increasingly important to institutional investors when making allocation decisions.

Distressed funds and investor relations

There are many occasions throughout the life of a fund where a dispute may arise.  

Often, poor performance may be the trigger for these disputes (whether arising as a result of liquidity management measures or otherwise), although funds can be vulnerable to a variety of other factors including departures of ‘Key Persons’, market volatility and/or service provider breakdown.

It is of course unfortunate when disputes arise; nonetheless, it is part of the life of a fund and, if managed carefully, is not necessarily fatal. We work with you from the beginning to ensure that your fund is as best placed as possible to deal with extraneous events. Additionally, we may also advise directors on their duties and obligations in such circumstances.

In keeping with our “cradle to grave” approach, there will come a time when the commercial life of the fund will come to an end and the funds will need to be closed down. We can work with you and your service providers to identify the most time and cost-efficient approach in this process, including advising you on the best course of action when communicating with investors and regulators.

Hedge and open-ended fund formation and distribution

Ensure all structures are optimised for your strategy and your investors. Move forwards supported by market-leading advice and an unparalleled network.

Launching a new fund is a complicated project – and a wide variety of options need to be weighed, depending on the strategy, the types of investors expected and the changing regulatory environment. It’s not only the new funds that need guidance, however. Large and established managers are also often in need of specific advice as their goals evolve and the legal and governance landscape develops.

We advise on the structuring (and restructuring) and launch of EU and non-EU hedge and open-ended funds including UCITS, feeder and parallel funds. We also act for investors in reviewing fund documentation and on fund financing arrangements. With access to experts in marketing and outsourced fund management in house, MJ Hudson can provide a truly integrated, multi-discipline service.

We are not only lawyers but ‘trusted advisers’, covering more than just pure legal advice. As such, we will co-ordinate with and can introduce a wide network of recommended professionals including placement agents, fund directors, administrators, prime brokers and depositaries.

Liquidity management, side pockets, and illiquid assets

Whilst open-ended funds are typically associated with liquid assets, we know that investment strategies can dictate a broad range of liquidity profiles.

Despite the best efforts of regulators, often managers will find that the redemption profile of their fund will not correspond with the liquidity of the asset portfolio. The importance of ensuring adequate and appropriate liquidity management tools have been provided for cannot be underestimated.

At MJ Hudson, we advise on a broad spectrum of investment strategies. We will work with you to tailor bespoke liquidity management mechanics to suit your asset liquidity and advise you on the applicable regulatory disclosures and reporting that may come with that. We work with you to ensure you have the most up to date and comprehensive set of liquidity management tools at your disposal should you ever need them.

Onshore debt and equity finance

Both established and emerging managers need capital, and the terms that capital is offered on can be crucial. 

We frequently advise these managers on their onshore finance requirements, be that debt (secured or unsecured) or equity. It is vital that legal advice is sought at the beginning so the transaction stands against legal scrutiny, especially in the context of fund managers providing capital in their personal capacity.

We also advise on seed and platform arrangements, which frequently combine elements of equity and debt finance into one.

These matters may often have knock-on effects for the calculation of NAV for the fund, as well as the expense provisions.

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Our thinking

This research, conducted by MJ Hudson’s legal team, analyses the key economic and non-economic terms, across a significant sample of private equity funds that came to market or closed in 2021. We aim to provide both LPs and GPs with an enhanced understanding of the current strengths and weaknesses of the fundamental terms impacting private equity funds.
MJ Hudson Private Equity Fund Terms Research – 7th Edition
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