Robert Bodansky, E. Ann Gill, and Laura Zinanni Published in Hedge Fund Law Report
"New Hedge Fund Transparency and Investors' Rights -- The Times They Are A Changin'"

Robert Bodansky, E. Ann Gill, and Laura Zinanni's article "New Hedge Fund Transparency and Investors' Rights -- The Times They Are A Changin'," was published in the August 19, 2009 issue of Hedge Fund Law Report. According to their article, investors have a lot more rights and transparency in private equity than in hedge funds. However, in the article, the authors predict that more regulations will be enacted in the near future. They expect that we will see broader and more transparent regulations transferring to the hedge fund world, similar to what is already happening with private equity. They note, "Leading institutional investors, state attorneys general and regulators are demanding greater transparency, more reporting and additional investor protections from hedge funds. The fund managers are doing their best to resist these demands, but change is inevitable."

In their article, Bob, Ann, and Laura outline what types of provisions we should expect and what's necessary to protect hedge fund investors. The attorneys note, "While there are distinct differences between private equity and hedge funds, there is no reason why a number of private equity concepts, or a variation of them, cannot be incorporated into the hedge fund world." Some of the provisions they suggest adopting from private equity funds are: establishing Advisory Committees, performance fees only on realized gains, standard of conduct and fiduciary duties, and reporting.

The attorneys also discuss the regulatory proposals affecting hedge funds. According to their article, "Regulators in both the U.S. and Europe are seeking additional authority with respect to protecting investors and systemic risk. Disclosure by hedge funds will be a key element of any new regulatory authority." They discuss the proposed Private Fund Investment Advisers Registrations Act of 2009, the European Commission's draft directive regarding the regulation of hedge funds and other alternative investment funds, and the proposed pay-to-play regulations, which addresses public pension funds. Bob, Ann, and Laura note that "The proposals discussed above are still only in draft form and have not yet been implemented. However, we expect that reforms will be adopted that will be similar to their proposals. Hedge fund managers and investors in hedge funds should begin considering the impact that such legislation will have on them and their investments."

The authors also provide some suggestions for investors in their article. They provide specific guidance to investors on how to exercise due diligence before making an investment, and they recommend that the interests of the investors and the managers be aligned in such a way that the manager makes decisions that are best for the investors.

Bob, Ann, and Laura note that readers should look for additional regulations of hedge funds, including requirements that hedge fund managers register as registered investment advisors under the Investment Advisers Act of 1940, as amended, in the U.S. and similar registration in Europe. They also expect to see hedge fund managers and their attorneys seeking new ways to shelter and defer performance fee income. The authors conclude, "Investors with the gravitas to negotiate tougher disclosure and other investor-protective provisions in hedge fund documents will continue to press for provisions such as those outlined above. Many fund mangers will continue to fight these changes, but over time, these and other changes are likely to become the new standard for hedge fund investments."