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    Jan. 30, 2025

Ireland’s New Dividend Participation Exemption: An Opportunity for Asset Managers

Industry bodies across various sectors have, for many years, articulated a need for Ireland to introduce a form of dividend participation exemption into its tax code to sit alongside the existing capital gains participation exemption. The introduction of such an exemption represents a culmination of this ongoing dialogue and consultation between stakeholders and Ireland’s Department of Finance. This measure aims to enhance Ireland’s holding company regime by exempting qualifying foreign dividends from Irish corporation tax in the hands of the Irish recipient company. The addition of a dividend participation exemption to Ireland’s tax code is an important development, further enhancing Ireland’s position as a leading jurisdiction for private market investment structures. Although the scope of this exemption is presently limited to E.U./European Economic Area countries and treaty jurisdictions, it marks a significant advancement in addressing complex double-taxation issues and simplifying compliance for cross-border operations. This guest article by Shane Geraghty, partner at K&L Gates in Dublin, and Patrick McClafferty, partner, and Elaine Butler, senior manager, at Nexus Taxation explains how the dividend participation exemption operates; its practical implications and benefits; the eligibility requirements; the implementation and compliance considerations; and the strategic implications for asset managers. See “Ireland’s Department of Finance Issues Recommendations for Funds Sector” (Dec. 5, 2024).

Key Benefits Offered by Hybrid Funds and Different Liquidity Mechanisms to Unlock Them (Part One of Two)

Hybrid funds have become increasingly popular as fund managers look for creative ways to provide more flexibility for investors and address issues that can limit traditional open-end and closed-end funds. Although the evergreen nature of hybrid funds can save managers time from having to constantly fundraise, they also present an array of conflicts of interest and complications that need to be weighed and mitigated. The Practising Law Institute hosted a panel on hybrid funds as part of its Advanced Issues in Private Funds 2024 program. The panel was moderated by Cleary Gottlieb partner Maurice R. Gindi, and featured Matthew Jill, partner and GC, private funds and secondaries at Ares Management; Barbara Niederkofler, partner at Akin; and Amelia Stoj, CCO and assistant GC at Foresite Capital. This first article in a two-part series discusses the fundraising benefits and challenges presented by hybrid funds, as well as several types of liquidity mechanisms that managers can wield to meet their investors’ withdrawal needs. The second article will analyze other features and considerations when operating a hybrid fund, including as to investor discussions, operational challenges, management fees, carried interest, clawbacks and conflicts of interest. For additional insights from Niederkofler, see “Eleven Top of Mind Questions and Misconceptions Surrounding the New Marketing Rule” (May 26, 2022); and from Gindi, see “High Level Takeaways and Observations About the Potential Impact of the Final Private Fund Rules” (May 23, 2024).

SEC and CFTC 2024 Enforcement Results: Record-High Financial Remedies Across Fewer Actions

On the one hand, the SEC and CFTC both imposed record-high financial remedies in their 2024 fiscal year (FY2024), which ended on September 30, 2024. On the other hand, the agencies brought substantially fewer enforcement actions than in recent years, according to their FY2024 enforcement reports. Moreover, the record financial remedies were driven by blockbuster awards in just two actions: the SEC’s trial victory against Terraform Labs PTE and Do Kwon, which offered a stablecoin pegged to the U.S. dollar, and the CFTC’s judgment against digital currency exchange FTX and Alameda Research. The agencies’ enforcement reports reflect their continuing focus on digital assets and emerging technologies, as well as traditional areas including compliance, misconduct and fraud. This article distills the key takeaways from the reports. See “SEC and CFTC 2023 Enforcement Results: Robust Enforcement Activity and Significant Monetary Sanctions” (Jan. 18, 2024).

ACA Compliance Testing Survey: Electronic Communications Displace Marketing As Top Concern

ACA Group, in collaboration with the Investment Adviser Association and Yuter Compliance Consulting, released its 19th annual Investment Management Compliance Testing Survey (Report). The Report covers several issues specific to private fund managers, including expense allocations; fee and expense controls; performance presentation; and the impact of the Private Fund Adviser Rules, which have since been vacated. It also covers key elements of compliance programs, marketing, electronic communications, anti-money laundering controls and artificial intelligence. This article distills the Report’s key findings, with commentary from Carlo di Florio, global advisory leader at ACA Group. See “ACA Compliance Testing Survey: Marketing Rule Remains Top Compliance Focus” (Feb. 1, 2024).

SEC Charges Hedge Fund Manager With MNPI Failures Related to Consultant

On December 20, 2024, the SEC announced that it had brought charges against a hedge fund manager that invests heavily in distressed companies for alleged securities violations relating to its internal policies and procedures. In the SEC’s view, the manager’s compliance department should have been more proactive and more closely monitored the activities of a consultant and his use of material nonpublic information (MNPI) gleaned in the course of his work on creditors’ committees. However, it is important to note that the SEC did not actually charge the manager or consultant with any improper use of MNPI but with a failure to implement and enforce reasonably designed compliance policies and procedures to prevent such misuse. The manager has denied any wrongdoing, stating that it was “shocked” at the SEC’s characterization of its internal compliance culture. This article summarizes the case and presents key takeaways for fund managers seeking to avoid any potential complications around the use of MNPI. See “Inadequate MNPI Policies Cost CLO and Hedge Fund Adviser $1.8 Million” (Nov. 21, 2024).

Lowenstein Sandler Welcomes Former Counsel to CFTC Chair

Ryne Miller has joined Lowenstein Sandler’s New York office as partner, chair of the firm’s commodities, futures and derivatives practice and co-chair of its cryptocurrency group. Miller formerly served as legal counsel to then-CFTC Chair Gary Gensler and has experience dealing with the CFTC, SEC, DOJ, FINRA, NFA, Financial Crimes Enforcement Network and other federal and state regulatory bodies. For another recent addition to Lowenstein, see “Lowenstein Sandler Adds Former GC/CCO to Investment Management Group” (Oct. 24, 2024).

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