Hedge Fund Compliance Summit
The Hedge fund Compliance Summit was held at Princeton club, New York on November 15 and 16, 2010. Panelist included representatives from SEC and a number of law firms. GlobalRisk Community participated as a media partner and we distributed the brochure on our forum.
The main focus of the two-day summit was on the Dodd-Frank Act and the legislative changes affecting Investment advisers of the hedge funds and private equity funds, in particular marketing of the funds.
Under the Act and SEC proposal released on November 19, 2010, advisers to private fund managers and hedge funds with more than $150 in AUM must now register with the Commission by July 2011 or with a state by October 19, 2011 and withdraw from SEC oversight. The Title IV of the Dodd-Frank Act also known as the “Private Fund Investment Advisers Registration Act of 2010”or the PF Act also eliminates “Small Investment” exemption (advisors with less than $25 million AUM and fewer than 15 clients) that will now require many private funds to register as investment advisers. Exempt from the registration will be: Foreign Private Advisers, Venture Capital Fund Advisers, Smaller and Mid-Sized Private Fund Advisers and Advisers to Small Business Investment Companies.
The Act would require registered firms to provide reams of information about their operations including investment positions, use of leverage, disclosure on portfolio managers and a host of compliance issues. Rregistered firms will be required now to hire compliance officers, draft compliance policies and provide detailed reports on how they are meeting various requirements. “It’s expensive, it takes a long time and it’s the antithesis of what many of these families are shooting for” some participants said.
SEC regulation would tear the veil of anonymity and secrecy of smaller hedge funds as some of this information will be available for public scrutiny. If the rule goes into effect a number of smaller family offices would likely shut down, while others would seek to merge with larger firms that will have to register with the SEC in any case. Such consolidation could put a damper, on family office investments in hedge funds, some market participants said.
SEC representative shed some light on a widening probe into insider trading against hedge fund traders, consultants and Wall Street bankers. The criminal and civil probes are examining whether multiple insider-trading rings improperly gained nonpublic information about pending health-care, technology and other merger deals and reaped illegal profits totaling tens of millions of dollars, going back to at least 2007. The SEC sent subpoenas to one in four firms it has been examining. Some charges could be brought before year-end. Recent articles in news sources confirmed the massive joint insider-trade probe by the FBI and SEC.
The Volcker rule, Title VI of the Dodd-Frank Ac t, Section 619, was briefly discussed as it affects mainly banks, i.e.limiting their proprietary trading and investment in a hedge fund to de minims of 3% in seed capital.
Please comment and provide your view of the changes in compliance, too much or just about right.
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