Hedge fund compliance: Investors demand new regulations
As this turbulent economic climate continues to churn, many changes are brewing at the steps of Wall Street. Hedge fund managers and broker-dealers have become the latest targets as the government and SEC push for mandatory hedge fund compliance. Hedge fund compliance has been a hot topic in congress as the Hedge Fund Transparency Bill was introduced on January 29, 2009. The bill proposes that all venture capital, private equity, and hedge funds must register with the Securities and Exchange Commission, (SEC) as investment advisors. Even President Obama has been vocal about hedge fund compliance, and has been trying to pass legislation about the matter on Capitol Hill in hopes to have a bill passed on the matter by the end of the year.
But there is even another source pushing for hedge fund compliance, a source which could present even more pressure for reform than even the government; the investors themselves. Since the economic collapse in 2008, investor confidence has been at an all time low. For those investors who do still dare to play the game, the rules have dramatically changed. The fact is that more and more investors are conducting much stricter due diligence than in the past, and are looking for hedge funds who have registered with the SEC and have a strong compliance program. Because of these uncertain times, hedge fund compliance is becoming the norm and any hedge fund manager ignoring this is costing their firm future clients and revenues.
Hedge fund compliance can be a lengthy and complex process without outside help. In order for a hedge fund to become compliant and remain compliant, the hedge fund manager must follow a strict and ever changing set of rules and regulations laid out by the SEC for the hedge fund compliance process. In order for the hedge fund manager to meet the requirements of the SEC they will need to update all files, including representative files, account files, correspondence files, advertising files, costumer complaint files, and new account applications. When the hedge fund is eventually audited by the SEC to see that it is continuing to meet the requirements of hedge fund regulation, all of the above files will be thoroughly examined by an SEC official to determine compliance, including a complete review of the firm's Training Plan, Business Continuity Plan, and Anti-Money Laundering procedures. The hedge fund compliance compliance process is complex, time consuming, and extremely frustrating and a financial firm should never attempt to prepare for a compliance review on their own.
In order for an investment firm's hedge fund compliance to go smoothly, the firm needs to hire an experienced outside accounting and compliance company. A good accounting and compliance firm will be able to alleviate much of the stress and frustration that comes with hedge fund compliance. A good accounting and compliance firm will also always recommend all hedge funds develop a compliance program complete with a Registration plan, a CCO, (chief compliance officer) a Compliance Manual, and an Annual Audit. Do not use an accounting and compliance firm who does not recommend these steps, or that does not offer mock-SEC audits, CCO training, and who will not write or revise your Compliance Manual. Any experienced accounting and compliance firm will always provide these services and more to help their clients with the hedge fund compliance process.
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