Exculpatory Hedge Clauses in Investment Advisory Contracts: Development Since Heitman Capital
The Investment Lawyer, Vol. 21, No. 2, February 2014
11 Pages Posted: 14 Jun 2019
Date Written: 2014
The Investment Company Act of 1940 (ICA) and the Investment Advisers Act of 1940 (IAA) prevent an investment adviser from contractually limiting liability to its advisees through three main routes: statutory anti-waiver prohibitions, the IAA's anti-fraud provisions, and limitations on indemnification by registered investment companies of their investment advisers. This article focuses on one of these three area, the IAA's anti-fraud provisions, and specifically, the SEC's expansive interpretations of those anti-fraud provisions to cover exculpatory "hedge clauses" - caveats or cautionary statements - by investment advisers purporting to limit their liability to their advisees. Hedge clauses remain very common in the investment adviser industry. In the first half of 2013, hedge clauses that triggered a finding of a contractual deficiency were commonly found in state and Canadian provincial examinations of investment advisers.
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