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THE QUESTION ON ALL OF OUR MINDS: WHAT IMPACT WILL THE TRUMP ADMINISTRATION HAVE ON THE HEDGE FUND INDUSTRY? BY RON S. GEFFNER AND YEHUDA BRAUNSTEIN Reprinted with permission of Hedgeweek With the Trump administration in the White House, regulatory uncertainty permeates the financial services industry. While many on Wall Street are very excited by the Trump presidency, others are approaching this new era with trepidation. Presi- dent Trump is unpredictable in many ways, and the industry eagerly awaits his actions hoping that the financial markets do not respond negatively and create chaos in the global marketplace. While we should expect that the Trump administration will aim to cut back financial regulation implemented during the last eight years, it is unrealistic to expect that these laws will be eliminated in their entirety. Though the financial markets have been extremely volatile of late and react very swiftly upon the announcement of any meaningful global news, vari- ous aspects of recent financial regulation have been positive for the industry. For example, the requirement for many investment advisers to register with the U.S. Securities and Exchange Commission (“SEC”), one of the requirements of The Dodd—Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) which was signed into federal law by President Obama to be effective as of July 21, 2010, in retro- spect, has been viewed as a positive change within the industry. Understandably, when initially intro- duced in 2010, many asset managers located within the United States and abroad that were required to register as investment advisers with the SEC as a result of Dodd-Frank were opposed to the changes. However, many advisers, investors and regulators now agree that requiring a larger number of advisers to be accountable to higher regulatory standards has created an environment where investors and coun- terparties have more confidence in the oversight of those managers and the industry as a whole. It is also important to remember that any time the government or a regulator changes the laws, rules or regulations, those businesses affected incur capital and opportunity costs in connection with analyzing the changes in law and implement- ing operational changes to comply with the new laws. For example, when Dodd-Frank was origi- nally enacted, at the time of registration, those investment advisers that were required to register as advisers with the SEC were required to adopt written policies and procedures and invested capi- tal into their operations and technology to support compliance. Therefore, we expect that caution will be exercised before significant change is made to avoid the various costs associated with imple- menting change. A case in point is the new DOL Rule (discussed earlier in this newsletter), origi- nally set to take effect on April 10, 2017. Invest- ment advisers impacted by the DOL Rule, have already been forced to analyze the DOL Rule and its impact on their businesses, and some advisers have already begun to implement changes to their operations and procedures. The DOL Rule has been the subject of much debate. While some industry experts believe that the DOL Rule is onerous and materially increases the costs associated with providing services to clients, supporters of the DOL Rule believe that it is necessary to protect investors against brokers who are unnecessarily selling high-fee investments to their clients. On February 3, 2017, President Trump signed a memo- randum to delay the DOL Rule by six (6)-months. On March 1, 2017, the DOL issued a proposed rule, which will extend the applicability date of its fiduciary rule, including the Best Interest Contract Exemption, from April 10, 2017 to June 9, 2017, a 60-day delay. If the DOL Rule is ultimately modi- fied or even eliminated, some advisers may have to reverse their recently-implemented changes. In conclusion, we do not believe that regulations in the financial industry will be eliminated in their entirety. For example, if the requirement to register as an investment adviser with the SEC is materially modified or no longer required, we expect that many investment advisers would maintain their registra- tion as it is perceived to be a competitive advantage compared to those managers that are not registered. While we expect the Trump administration to improve the financial services industry by having more bal- anced regulations, we believe that this administration will quickly realize that there are a lot of reasonable and sensible regulations currently in place that are working well, and that eliminating rules wholesale can create chaos in the financial markets and may come at a high price to their constituents. Ron S. Geffner is a Partner and Head of the Financial Services Group of Sadis & Goldberg LLP. He regularly structures, organizes and counsels private investment vehicles, investment advisory organizations, broker-dealers, commodity pool operators and other investment fiduciaries. Mr. Geffner also routinely counsels clients in connection with regulatory investigations and actions. His broad background with federal and state secutities laws and the rules, regulations and customary practices of the SEC, Financial Industry Regulatory Authority, Commodity Futures Trading Commission and various other regulatory bodies enables him to provide strategic guidance to a diverse clientele. He provides legal services to hundreds of hedge funds, private equity funds and venture capital funds organized in the United States and offshore. Ron can be reached at 212.573.6660, or at rgeffner@sglawyers.com. Yehuda M. Braunstein heads up the Family Office practice and is also a member of the firm’s Financial Services and Corporate Groups. Mr. Braunstein counsels family office cli- ents in connection with all aspects of their operations, including formation issues, governance and compensation issues, transactional and day-to-day matters, as well as compliance issues. Mr. Braunstein’s practice also focuses on investment funds, securities, joint ventures and investment advisers. He regularly structures and organizes hedge funds, private equity funds {including real estate, distressed and lending funds), funds of funds, separately managed accounts and hybrid funds. Additionally, he advises private fund managers on structure, compensation, employment and investor issues, and other matters relating to manage- ment companies. Mr. Braunstein also structures and negotiates seed investments and operating agreements. He provides ongoing advice to investment advisers on securities law issues, including SEC filings. His practice also involves counseling clients in SEC regulatory mat- ters, including compliance issues related to registered advisers, as well as conducting mock audits. Yehuda can be reached at 212.573.8029, or ybraunstein@ sglawyers.com. HOUSE_OVERSIGHT_019860