Podcast series: Contentious Asset Management

Asset management can give rise to conflicts of interest including between manager and investor or among investors. Such conflicts typically (but not always) arise from a divergence of the economic interests and can be a function of how a fund is structured or specific types of fund transactions.

Managers and individuals that are within the regulatory perimeter owe regulatory obligations to manage conflicts of interest fairly (among other more specific obligations); in recent years the FCA has shown an appetite to enforce breaches of these obligations. For managers and individuals who service retail investors, the Consumer Duty has raised regulator expectations around conflict management yet further.

In other contexts, managers, partners and individuals (including directors) owe specific tortious, fiduciary and statutory duties to avoid and / or manage conflicts, breach of which may give rise to claims by investors. Our areas of focus on this issue include:

• Governance best practice
• Navigating conflicts inherent in retail and hedge fund structures:
  • AFM and IM conflict
  • Fund board composition considerations
• Navigating conflicts inherent in GP led private fund transactions:
  • Secondaries
  • Co-investments
• Conflict considerations in the context of manager errors
• Director's duties

Financial and trade sanctions are part of a package of measures usually applied by individual countries or international organisations to fight aggression, terrorism, criminal behaviour, or violations of human rights. A recent example is the set of the financial, trade, aircraft, shipping and immigration sanctions the UK imposed on Russia in February 2022 to discourage and react to the invasion of Ukraine. These types of sanctions have major implications for all sectors, including asset managers given the international and cross-jurisdictional nature of their clients and services. A practical example is the SWIFT ban against some Russian banks which resulted, among others, in its interbank payment transactions becoming significantly more complex and the country's ability to trade goods and exchange currencies being significantly reduced.

Our areas of focus on this issue include:

• Advising on sanctions risk (including wider corporate crime risks) and compliance, including advising on every day compliance concerns
• Advising on transactions
• Conducting internal investigations into suspected breaches
• Supporting clients in their dealings with the relevant enforcement authorities and making licence application
• Conducting litigation

(Recorded before the judgment in Various Claimants v Barclays PLC [2024] EWHC 2710 (Ch)). In the coming months we may well see the first trial of a claim by investors for losses suffered as a result of a fall in share price following the publication of allegedly misleading information. The claim is brought under Section 90A FSMA. Similar actions brought in the past settled (RBS, Tesco and RSA). Many more such actions are expected. Our areas of focus include:

• Key strategic and legal issues that arise in s90A FMSA claims
• Updates on key recent Court decisions

See Episode 6 below for an update following the October 2024 judgment in Various Claimants v Barclays PLC [2024] EWHC 2710 (Ch).

Increased public and media interest in asset managers' investment activities has brought with it the increased risk of reputational harm through print and online content. There has also been a marked uptick in bad actors seeking to imitate asset managers for the purpose of defrauding investors. In our experience it is important that clients have in place plans to react to these types of issues and go-to advisers in the event that issues arise. Our areas of focus include:

• Clone sites and regulatory notifications
• Online content removal
• Proactive reputation management, including development of playbooks for triaging and responding to reputation management issues
• Reputational issues arising out of Key Person departures

In this episode, we examine two key publications by the FCA from earlier this year, focusing on their guidance around market abuse:

• Market Watch 77: Highlights the trading activities of organized crime groups, particularly methods used to access inside information, such as recruiting junior staff.
• Market Watch 79: Provides insights into common issues the FCA has observed with surveillance alerts, including problems with alert calibration. Recommendations include steps to enhance data governance, model testing, and model implementation and updates.

On 25 October 2024, the High Court ruled on a strike-out application in Various Claimants v Barclays PLC [2024] EWHC 2710 (Ch), focusing on the "reliance test" for shareholders in s. 90A FSMA claims. Key areas of focus include:

• Reliance test: shareholders must have directly reviewed a company's published information to meet the test
• Impact on passive investors: passive investors, including those in tracker funds, are excluded from bringing s. 90A claims
• Evidential hurdles: the judgment highlights the difficulty of proving reliance on published information
• Implications for investor claims: the ruling limits the ability of passive investors to bring claims under s. 90A

Regulated asset management firms have always had to consider their financial crime and fraud risk management processes, but recent developments have made this an imperative. From 1 September 2025, any ‘large organisation’ will be criminally liable for any fraud offences committed by an associated person for the benefit of the firm or persons to whom the firm provides services (i.e. for the benefit of managed funds or investors), unless the firm has reasonable fraud prevention policies in place.

The offence is of particularly broad scope. It captures conduct offences such as fraud and false accounting, which are themselves very broad, and has a broad extra-territorial scope. It applies to broad range of associated persons, including employees, agents and persons providing services to the firm – which may include entities in distribution chains.

In this podcast, we cover:

• The essentials of the new offence
• How it interacts with existing regulatory and civil fraud risks in the sector
• What firms should do to prepare

Crypto assets are growing in popularity. However, the novelty of the technology underpinning these assets and the speed with which the market is developing means that the law is having to develop rapidly as well. This presents some unique legal challenges as compared with other asset classes. Our areas of focus on potential issues arising include:

• Market abuse
• Issuer liability for misleading statements
• Private international law
• Decentralised finance (Defi) transactions

In this episode, we consider:

• The shift in the FCA’s focus from enforcement to supervisory interventions
• FCA’s key areas of focus when it comes to enforcement and intervention activity.

Please note that since this episode was recorded the FCA has announced its decision to drop its transparency/name and shame proposals.

In this episode, we look at conflict management in the private funds context. Conflict management has become a more prominent topic in a private fund context with the rise of GP-led transactions (in which conflicts are inherent). It is also a current hot topic for the FCA and we explore:

• The issues arising from its recent asset management alternatives portfolio letter.
• Its review of private market valuation practices published last week.
• Potential conflict issues for private funds more generally.

In this episode, we examine the core concepts underpinning claims made and threatened against asset managers, by way of a rapid-fire Q&A. We cover the following topics:

• Common causes of claims faced by Asset Managers: An exploration of why claims are typically brought against asset managers, focusing on underperformance or unprofitability combined with breaches of mandate, duty of care, or misselling.
• Breach of mandate and performance objectives: A discussion on how performance objectives can give rise to breach of mandate claims, including the concepts of "index huggers" and "closet trackers."
• Duties of care and fiduciary duties: An explanation of the manager's duty of care, who it is owed to, and how fiduciary duties (e.g., avoiding conflicts of interest) are often regulated by contract.
• Misselling claims and misrepresentation: Insights into claims based on representations made by managers, the reliance placed on them, and how exclusions in contracts can impact such claims.
• Liability risks in volatile markets: A look at the risks resulting from market volatility, including impact on managers' duty of care, increased fraud risks, and the upcoming criminal liability for failing to prevent fraud.