Tokens of Wisdom

Last episode we dissected the SEC’s “venture capital fund” definition and discussed how, if an adviser manages only VC funds, there is no AUM ceiling on its ability to remain exempt from registration. If that same adviser manages money for any non-Venture capital fund, it has to register as an investment adviser once AUM hits $150mm. This can lead some less scrupulous investment advisers to try to...

Like I mentioned back in Episode 2, there are some down sides to relying on the private fund exemption – at the SEC level, the only “down” side is an AUM ceiling after which you have register (150mm…see ep 32). But many states require extra stuff if you’re managing any 3c1 funds: this varies by state, but many impose annual audit requirements and either increased investor accreditation thresholds,...

One of the underappreciated tasks a new fund manager needs to complete is its management company operating agreement. This is the agreement among the principals of the management company that controls how the entity is governed, how economics are split among the principals, etc. Key Points From This Episode: Why is it important to paper these agreements? Why they sometimes get put on the back burn...

Recently, it seems like tokenizing things is all the rage. Everybody wants to talk about tokenizing real estate or art or securities or any other “real world asset”. Heck, even “RWA” has become a commonly understood acronym to describe things that exist in tangible form, as opposed to just digitally. Well, private investment funds are no different, and I’ve noticed an uptick recently in managers i...

March Madness means something different for compliance professionals and investment management lawyers: it means a crush of ADV Amendments! Tune in to today’s episode for some nice bedtime listening about the ins and outs of one of the world’s least interesting regulatory filings.  Key Points From This Episode: Who files a Form ADV? When are regular amendments due? What kinds of information typica...

What does My Cousin Vinny have to do with third party marketers? Tune in to today’s episode to find out! Hint: nothing.  Key Points From This Episode: What makes My Cousin Vinny such a great movie? How can I pay my cousin commissions for selling interests in my fund? Why your cousin is unlikely to be moonlighting as a broker-dealer.  Disclaimer: This show is for informational purposes only. Nothin...

A couple months ago, I did an episode discussing the Corporate Transparency and concluded that, while it’s annoying and kinda stinks, it’s not that big of a deal.  Well, we’re now a couple weeks into the reign of the CTA and I’m back to tell you….I was wrong (kinda). Key Points From This Episode: Why CTA compliance might be annoying for your typical fund manager. Examples of the kinds of CTA amend...

Christmas is right around the corner, and that can only mean one thing: Dave’s year-end podcast episode!! As we say goodbye to 2023 and its rock-bottom crypto prices, let’s raise a glass to the future, and open an ear to a quick rundown of the year’s most significant crypto and fund storylines.  Key Points From This Episode: Turning 2022’s frown upside down. BTC price action. A walk down memory la...

I talk to a lot of 1st time fund managers and one common mistake I hear is that they think the fund entity is their business. But it’s not. The fund is a passive investment vehicle. It might be the focus of your business; it might be your business’s only revenue source; it might take up almost all of your time; but your management company – not your fund – is your business.  In today’s episode we’...

Exciting (?) new law hits the books that will affect almost every business entity formed or operating in the United States! It’s the Corporate Transparency Act! Key Points From This Episode: What business entities are captured by the new law? What does the new law require? What is FinCEN? What kinds of entities are exempt from the CTA (hint, registered CTAs are among them)? What are the deadlines?...

Today we’re keeping the performance-based comp discussion going and looking at “Carried Interest” or “Carry” for short: performance-based compensation for closed-end funds – VC, PE, etc. One big structural difference from open-ended funds is that the GP typically doesn’t get performance-based comp on paper (i.e., unrealized) gains. For a refresher on closed-end vs open-end funds, listen to Episode...

Building off our last episode’s discussion of performance allocations and high water marks, today we’re tackling hurdle rates. If you need more background on today’s topic, listen to Episode 24 first. Key Points From This Episode: What is a Hurdle Rate and how does it work? (Not so) surprising fact about Olympic gold medals. Hard hurdle rate vs Soft hurdle rate. Illustrative examples. Disclaimer:...

Today we’re talking all about High Water Marks in a hedge fund-style vehicle. Of course, to understand HWMs, first you need a basic understanding of how performance allocations work, so we start there. Key Points From This Episode: Basic performance allocation mechanics. What is a High Water Mark and how does it work? A few ways to make it more complicated. Illustrative examples with math simple e...

What’s a fund expense vs a manager expense? Fund managers are often curious about what expenses they will be responsible for, and what expenses the fund will cover itself. This is especially important for first-time managers forecasting cash needs for their new management company business. For the most part, if you accurately and fully disclose to fund investors what expenses the fund will bear, t...

Feels like a lot has been happening in the crypto world lately, and while none of these stories/events is individually worthy of its own episode, everyone loves the occasional news roundup. So in this episode we take a quick ride through some recent newsworthy events affecting The Space.  Key Points From This Episode: Grayscale’s court win. Financial Accounting Standards Board’s new fair value acc...

Big news in Private Fund Land, as the SEC Commissioners on voted August 23rd to adopt one of the more significant new private fund-specific rules in recent memory. This one was about 18 months in the making (the rule was first proposed in early 2022), and while the final rule pared back the most overreaching aspects of the proposal, it still has far-reaching impacts that will alter how pretty much...

If you’re a fund manager based outside the United States with no operations in the U.S., you may think American securities laws don’t extend to you. But if you’re seeking to raise capital from U.S. investors, you are wrong. As soon as you sell fund interests to even a single U.S. investor, you are selling securities in the United States (and you need to comply with the Securities Act), your fund i...

By now you’ve all heard the great news coming out of the Southern District of New York: Ripple defeated the SEC!! This is, no doubt, an enormous win for Ripple and the crypto community writ large, but it’s not the end of the fight. And and some of the hot takes you read on Twitter (or Threads?) are…less than accurate. Shocking, I know. On today’s episode , I share my brief summary of the order, wh...

If you want early fireworks before the 4th tomorrow, listen to last week’s Unchained Podcast where Laura Shin “interviewed” Aaron Kaplan, co-CEO of Prometheum , and Paradigm Special Counsel Rodrigo Seira. I put “interview” in quotes because it’s more like she refereed a prize fight. Listen to that before you listen to this, then come back here and hear why Aaron’s arguments don’t hold much water....

Armageddon or Salvation? Who knows! But everybody’s using AI all of a sudden, including fund managers in a variety of novel and interesting ways. Listen up for a handful of questions/observations from my recent experience. Mostly, make sure you’re thinking through the implications of any new technology you’re using.  Key Points From This Episode: Best and worst use cases for various AI technologie...

SEC vs Binance on Monday. SEC vs Coinbase on Tuesday. What a week!  The gloves are officially off, and the SEC is coming hard after the crypto titans. What does it all mean? You’ve come to the right place. Key Points From This Episode: Similarities (unregistered offerings galore!) and differences (fraud!) between the Binance and Coinbase allegations. Why the allegations against Coinbase seem parti...

Today’s show is all about decentralized autonomous organizations…DAOs! What are they? How do they work? Why you should probably learn the answers to the two prior questions before listening to this. Key Points From This Episode: High-level overview of the concept of a DAO. Dave’s Top 5 issues for fund managers to consider before touching DAO tokens with fund assets: Liability; Regulatory; Governan...

We have a super-sized episode for you today, and it’s different from our usual fare in more than just length. Last week, I invited Fizza Khan - CEO of Silver Regulatory Associates; Mike Fitzgerald – Managing Director and Global Head of Cap Intro at TD Cowen; and Malhar Oza – Senior Associate at CFM to join me for an in-person event discussing the SEC’s marketing rule. This episode is a lightly edi...

In a less-than-stellar fundraising environment, some aspiring fund managers want to dip their toe into the fund waters by forming an SPV to invest in one high-conviction idea. An SPV in this context is just a “mini fund” - it’s an investment vehicle formed by a manager to pool capital from outside investors to make (usually) a single investment.  Key Points From This Episode: Different ways in whi...

In a less-than-stellar fundraising environment, many aspiring fund managers want to dip their toe into the fund waters, without incurring the expense of a full fund offering. This is where an incubator fund might make sense, and that’s the topic of today’s episode. An incubator fund allows an aspiring manager to test an investment strategy and develop a track record that can eventually be marketed...