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Download AIMA Journal AIMA JOURNAL Edition 125 |March 2021| aima.org AIMA JOURNAL EDITION 125 Message from AIMA’s CEO 0 4 Jack Inglis Decrypting the crypto regulatory landscape: 06 What lies ahead in 2021? Contents BlueCrest Capital Management (UK) LLP Private debt: Rising above the rest 1 Broadridge Financial Solutions, Inc. 0 Revisiting issues involved in transferring positions 1 AB Trading Advisors 4 Opening up China’s financial market with 19 new QFII/RQFII Rules Simmons & Simmons ESG: Challenges and opportunities in raising the bar 22 KPMG Opportunities and challenges in hybrid funds 2 SS&C GlobeOp 6 Risk Parity: An allocator’s rationale 3 Lombard Odier Investment Managers 0 Advancing fund governance for closed-ended structures 3 Maples Group 4 Business disruption continues to pave the way 3 for digital transformation 8 RFA Does Investment Limited Partnership reform represent 4 a renewed opportunity? 2 PwC in Ireland How to beat a depression: Lessons from Franklin 4 Delano Roosevelt 6 Man Group Cross border regulatory implications for alternative 5 investment managers 2 Coremont Disguised Investment Management Fees (DIMF) and 5 carried interest: In search of guidance? 7 Larkstoke Advisors 2 AIMA JOURNAL EDITION 125 Finding leverage: How debt investors are tackling the 6 0 challenge of ESG ACA Group Cayman Islands alternative investment fund 6 4 structuring and regulatory considerations Walkers The Modern Compliance Officer 68 Laven 7 A regulator changed course on data collection. Why? 2 SEI PUBLICATION PLAN 2021 Q2 Edition 126 UK regulatory enforcement outlook for 2021: Deadline for submission 21nd May 7 An appetite for improvement 6 Dechert LLP Publication 28th June Pandemic progress, not compromise: How investor Q3 Edition 127 8 relations found a way forward under lockdown 0 Deadline for submission 30th July iConnections Publication 20th Sept 8 The investment limited partnership: 3 A new dawn for Irish private funds Q4 Edition 128 Maples Group Deadline for submission 29th Oct Publication 30th Nov 86 Hedge funds start integrating ESG Portfolio BI AIMA JOURNAL EDITORIAL GUIDELINES BAI AIC 90 91 Business 2 Schools 92 AIMA EVENTS 9 Contact Us 3 9 AIMA Sponsors 4 9 Publication Plan 2021 6 3 AIMA JOURNAL EDITION 125 Message from AIMA’s CEO am delighted to share the 125th edition of the I AIMA Journal, the first publication for 2021. As the world looks ahead to a potential exit from the current pandemic, we are pleased to bring you a collection of in-depth articles on some of the most pressing matters concerning the alternative investment industry. This bumper edition boasts no fewer than 21 articles from members and sponsoring partners. We are extremely grateful to all the contributors and their excellent insights within. Jack Inglis Digital assets and the digitalisation of the CEO, AIMA investment process remain at the forefront of many fund managers’ to-do lists. BlueCrest Capital Management provides readers with a comprehensive review of the regulatory landscape for crypto assets in 2021. Meanwhile, RFA discusses how the business disruption caused by the COVID-19 pandemic has led to more fund managers embracing new digital solutions. As part of this continuous process of adapting to a “new normal”, the IR function has done an excellent job at accommodating client needs in an online environment. iConnections discusses how investor relations found a way forward under lockdown. Continuing the theme of technology, Broadridge Financial Solutions argue the need for private debt firms to invest in technology infrastructure to enhance their reporting. Laven writes about the major challenges within the compliance industry highlighting a few technology solutions that a compliance officer can utilise. 4 AIMA JOURNAL EDITION 125 Staying on the pandemic theme, Man Group Elsewhere SS&C GlobeOp discusses the takes us back to the Franklin Roosevelt opportunities and challenges for hybrid administration and the lessons learned from funds while Maples Group touches on the policymakers back then which could help today’s fund governance protocols for closed-ended peers navigate the current economic climate. structures and the “new dawn for Irish private funds”. Hedge fund reporting requirements set Interest in ESG continues unabated with no fewer by the CFTC have seen several changes over the than three pieces in this edition discussing this past year, SEI explains what these changes are topic. KPMG discusses the opportunities and and the rationale for doing it. Larkstoke Advisors challenges for alternative investment managers provide updated guidance on the UK’s disguised in raising the bar on ESG, while Portfolio BI investment management fee and carried interest explains how hedge funds are implementing ESG legislation. across their businesses and allocation processes. ACA Group examines how debt investors are Rounding off this bumper edition,AB Trading tackling the challenge of incorporating ESG Advisors revisits issues involved in transferring criteria into a private debt portfolio. trading positions examining what issues to watch out for when reviewing transfer provisions Regulatory-related topics remain a high priority in trading agreements. Larkstoke Advisors for our members with the bulk of this edition provides useful guidance on the disguised dedicated to several regulatory issues. Dechert investment management fees and carried provide an overview of the FCA’s areas of focus interest. as it relates to financial crime and regulatory enforcement. Simmons & Simmons offers thier Finally, with US pension funds facing an ever analysis regarding what the new QFII/RQFII rules increasing funding gap, Lombard Odier make mean for the Chinese financial market when the case for risk diversified portfolios describing opening to the rest of the world. some of the features that they believe position risk parity to respond well to current market And speaking of international markets, Coremont conditions. looks at the cross border regulatory implications for alternative investment managers, PwC I hope you will enjoy this latest edition of the explores whether the reform of the Investment AIMA Journal. Please do not hesitate to share Limited Partnership in Ireland provides new your thoughts and let us know if you are opportunities for fund managers and Walkers interested in contributing to any future editions. looks at the Cayman Islands alternative investment fund structuring and the regulatory Jack Inglis considerations that comes with it. Chief Executive Officer, AIMA. 5 AIMA JOURNAL EDITION 125 Decrypting the crypto regulatory landscape: What lies ahead in 2021? Ryan Cartmill Legal Counsel BlueCrest Capital Management (UK) LLP Email Ryan Cartmill ith a 2020 performance of almost 300%, the publicised institutional investment occurred last Wallure of Bitcoin (and other cryptoassets) to month, when Tesla revealed in its SEC filing that both retail and institutional investors is plain to it invested in $1.5 billion of Bitcoin. But what see. Whilst it is argued that investor gravitation about the regulatory environment? This article to cryptoassets (particularly Bitcoin) has largely aims to explain some noteworthy aspects of been driven by the coronavirus pandemic, there the regulatory landscape in this rapidly evolving is nonetheless a clear turning of the tide in terms space, from a UK and U.S. perspective. of wider adoption for many reasons, not least as an inflation hedge against the devaluation of fiat In terms of market development in the U.S., there currencies as a result of central bank stimulus are numerous crypto exchanges which have packages. In fact, in a scarcely believable statistic, opened up to institutional investors and several 25% of all U.S. Dollars in circulation today were crypto derivative products have proliferated the printed in 2020 alone.1 market – CME and CBOE first launched Bitcoin futures in 2017 and ICE has also launched Bitcoin It is hardly surprising, therefore, to see the futures and options products of its own. The proliferation of institutions concerned with launch of such products was facilitated by the the potential erosion of cash on their balance CFTC’s order in 2015 in its order against Coinflip sheets, reallocating to Bitcoin in order to guard Inc., in which the CFTC classified Bitcoin as a against what is widely perceived as excessive commodity (under the Commodity Exchange Act) use of QE by central banks. The most widely and thus allowed for its entrance into derivative 1 Dominic Frisby, ‘Bitcoin is coming of age: make sure you own some’ MoneyWeek (29 January 2021) 6 AIMA JOURNAL EDITION 125 markets (like any other commodity). Therefore, January, HMT published its consultation on the any U.S. exchange offering Bitcoin derivatives UK regulatory approach to cryptoassets and must comply with the CFTC regulations. The stablecoins (the “HMT Publication”). This was CFTC decision has not been immune to criticism, in furtherance to commitments announced in particularly in that it allows crypto derivatives the UK Government’s March 2020 Budget to to be listed on futures exchanges when the consult on the broader regulatory approach underlying spot market of crypto is beyond the to cryptoassets, including new challenges CFTC’s regulatory purview.2 from so-called ‘stablecoins’ and follows earlier publications regarding the UK’s approach and Nevertheless, the unregulated spot market has guidance on cryptoassets from the FCA, HMT and not put off large asset managers from investing the Bank of England. 5 in these synthetic products and joining the bandwagon. In its January filing to the SEC, a As noted in the HMT Publication - at present a leading fund manager stated that it “may” invest large proportion of cryptoassets fall outside or in Bitcoin futures, however custody risk remains are likely to fall outside the regulatory perimeter.6 a deterrent to wider interest in these futures Of particular importance was the determination contracts. For physically settled Bitcoin futures that ‘exchange tokens’ (i.e. unregulated tokens/ contracts, the exchanges are required to hold assets/coins that are primarily used as a means physical Bitcoins.
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