CHAPTER 12 Financing for Hedge Funds

• Jurisdiction: United States
• Publication year: 2022

CHAPTER 12 Financing for Hedge Funds

Chapter Contents

§ 12.01 Introduction

§ 12.02 Prime Brokerage Services

[1] In General

[2] Leverage

[3] Regulation T, Portfolio Margining and Enhanced Prime Brokerage

[a] Margin Requirements Generally for New Securities—Regulation T

[b] Portfolio Margining

[i] Eligible Instruments

[ii] Availability

[c] Enhanced Prime Brokerage

[4] Prime Brokerage Agreements

[a] In General

[b] Issues to Negotiate for Investment Funds

[i] Parties Acting as Prime Broker

[ii] Applicability and Scope of Prime Broker Agreement Terms

[iii] Minimum Net Equity

[iv] Sub-Custodians and Agents

[v] Timing of Payments

[vi] Events of Default

[vii] Cross Default

[viii] Customer's Movement of Assets

[ix] Indemnification

[x] Prime Broker Liability

[xi] Rehypothecation of Assets

[5] Rehypothecation and Customer Protections

[a] Rule 15c3-3

[b] Requirement to Control Fully Paid Securities

[c] Limits on Rehypothecation

[d] Deposit of Cash in Special Reserve Account

[e] Voting Rehypothecated Securities

[6] Lock-Up Agreements

[7] Insolvency of U.S. Broker-Dealers—SIPA Proceedings

[a] Introduction

[b] Liquidation Procedures and Priority of Claims Under SIPA: Who Can Liquidate Under SIPA

[i] Securities Investor Protection Corporation

[ii] Requirements

[iii] Procedure

[c] Priority of Customers' Claims Under SIPA

[i] Who Can Liquidate Under SIPA

[ii] Net Equity Claims

§ 12.03 Total Return Swaps

[1] General

[2] Leverage

[3] Ancillary Benefits to Total Return Swaps

[4] Total Return Swap Facilities

[5] Recourse vs. Limited Recourse

[6] Market Value Triggers

[7] Voting Rights/Consultation Rights

[8] Reporting/Disclosure Issues

[9] Documentation

[10] Dodd-Frank Act

[11] Certain Tax Considerations

[a] U.S. Organized Funds with Taxable U.S. Individual Investors

[b] Non-U.S. Organized Funds

[c] Tax-Exempt U.S. Investors and Unrelated Business Taxable Income

[d] Dividend Equivalent Amounts on U.S. Equity Total Return Swaps

§ 12.04 Traditional Credit Facilities

[1] Structure

[2] Amount Available

[3] Credit Agreement Provisions

[4] Tax Issues

[5] ERISA Issues

[6] Master/Feeder Funds and Structuring Issues

[7] Management Company Loans

[8] Diligence Issues for Lender

§ 12.05 Fund-of-Funds Credit Facilities

[1] Overview

[2] Advance Rates and Eligibility Determination

[3] Collateral, Perfection and Certain Operational Issues

[4] Specialized Provisions in Loan Documentation

[5] Some Due Diligence Issues

§ 12.06 Warehouse Facilities and Collateralized Loan Obligations

[1]...