Hedge Fund Managers and the Financial Crisis: Issues for LLPs

The contraction in assets under management of many hedge funds has presented hedge fund managers with a dilemma, as projected income falls and performance fee hurdles are not met. Faced with high overheads and reduced income, managers are presented with difficult choices including restructuring, taking external investment or, in the worst case, liquidation. Given the popularity of using limited liability partnerships ("LLPs") as the vehicle of choice in structuring fund management firms, a number of unique issues must be addressed when considering various restructuring proposals. Also, a restructuring can be an opportunity to improve the LLP’s overall tax efficiencies.

Simon Firth and Daniel Lewin, Partners in Kaye Scholer's Investment Funds Group, discussed the legal, regulatory and tax issues confronting hedge fund managers formed as LLPs in the current environment.