Information is the raw material out of which hedge fund managers fashion their finished products – compelling investment ideas and, one hopes, absolute returns. As such, managers and their personnel are continuously engaged in collecting, refining and transmitting information, that is, communicating. Today, the vast majority of such communications occur electronically – via e-mail, chat
, text, social media and similar channels. From an investment perspective, this increases opportunities but at the same time competition. From a compliance perspective, the proliferation of electronic communications has dramatically expanded the range of opportunities for legal and regulatory violations. Hedge fund managers are not unique among businesses in contending with the compliance challenges raised by electronic communications, but many of the specific compliance challenges faced by hedge fund managers are industry-specific. Accordingly, the Hedge Fund Law Report is undertaking a three-part series intended to identify the specific compliance challenges for hedge fund managers raised by electronic communications and to outline best practices for surmounting those challenges. This article – the first in the series – catalogues six reasons why hedge fund managers need to monitor electronic communications of employees and highlights two settings in which procedures other than electronic communication monitoring are most effective. Subsequent articles in the series will discuss the sources of employees’ privacy rights, factors bearing on the reasonableness of an employee’s expectation of privacy, the benefits and limits of specific policies regarding electronic communication monitoring and best practices in this area. See also “Key Elements of Electronic Communications Policies and Procedures for Hedge Fund Managers
,” Hedge Fund Law Report, Vol. 3, No. 44 (Nov. 12, 2010).