Kelli Moll Quoted by IA Watch on Advisers Act Compliance Options for Principal Trades

IA Watch, in its article “Options exist for private funds to obtain consent to principal trades,” quoted Akin Gump investment management partner Kelli Moll on options for private fund advisers faced with, per the Advisers Act, “disclosing… the capacity in which he is acting and obtaining the consent of the client to such transaction” when the client is the fund itself.

Among the options presented by the publication, Moll said that off-shore hedge fund advisers often use their board of directors as the consenting party, while domestic fund advisers that are the GP of the hedge fund will, in many cases, appoint an independent committee of non-investors to perform that function. She noted that PE fund advisers often create an advisory board to approve principal transactions, adding, “It’s key to have the mechanism in place.”

On the topic of principal transactions, which IA Watch defines as trades in which the adviser is a principal in the transaction, Moll said that an adviser that owns 25 percent or more of a private fund would define every transaction in that fund as a principal transaction automatically. She also noted that extra care should be taken in the process of getting principal trades approved when the security is illiquid.