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ARTICLE · 03 DECEMBER 2020

Legal Risk For Fund Managers: A Case Study

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In this article we present a scenario that raises a series of concerns for a fund manager and explores key legal considerations that would apply as a matter of law in the UK1

United StatesFinance and Banking
Simon Firth
Simon Firth
Kathleen Harris
Kathleen Harris
Henry Clinton-Davis
Henry Clinton-Davis
Beatriz San Martin
Beatriz San Martin
Charlotte Mallorie
Charlotte Mallorie
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In this article we present a scenario that raises a series of concerns for a fund manager and explores key legal considerations that would apply as a matter of law in the UK.1

Scenario

The new general counsel of Wayward Fund Management ("Wayward"), Jemima, calls her lawyers, presents some facts and asks for an assessment of the potential legal and regulatory liabilities facing Wayward.

Wayward is an FCA regulated full scope AIFM and runs a flagship Cayman Islands hedge fund, Wayward Fund (the "Fund"). Through feeder funds the Fund's investor base is global, including a number of high net worth individuals and institutions.

Jemima discloses that the Fund's offering memorandum states that the Fund may not invest more than 10% of its net asset value ("NAV") in unlisted shares. That level has been breached (it is now 20% of NAV). These shares are now worthless and are the main cause of a decline of 10% of NAV this year.

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