Reminder of NAV Decline Triggers

Given the recent market volatility, we thought we would remind you about NAV decline triggers in your agreements with counterparties.  Most swap, securities lending and margin lending agreements (some of which may be in brokerage account agreements) include covenants that require your firm or its client or fund to notify the counterparty if certain events occur.  One common covenant requires notice to the counterparty if the net asset value of the client or fund decreases more than a specified percentage during a given period (such as 10-15% during a given month) or below a specified amount.  You should review those provisions carefully.  You should also comply with other common covenants that require that you deliver information (such as monthly NAV estimates and your funds’ audited financial statements) by the specified deadlines.

If you have any questions, please contact one of the attorneys in the Investment Funds & Advisers Group at Shartsis Friese LLP: John Broadhurst, Geoffrey Haynes, Carolyn Reiser, Neil Koren, Jim Frolik, Christina Hamilton, Joan Grant, Lyn Roberts or David Suozzi.

Previous letters to our investment advisory clients and friends and discussions of other topics relevant to private fund managers, investment advisers and private investment funds can be found at our insights page: www.sflaw.com/blog/investment-funds-advisers-insights.