• |

    Jan. 20, 2022

Thirteen Questions an Adviser’s Principals Should Ask Compliance (Part Two of Two)

Under Rule 206(4)‑7 of the Investment Advisers Act of 1940 (Advisers Act) – the so‑called “compliance rule” – private fund managers are required to adopt policies and procedures reasonably designed to ensure compliance with the Advisers Act. Managers are also required to designate a CCO, who is responsible for administering the compliance program. A firm’s principals, however, cannot simply appoint a CCO and then ignore the compliance program. The SEC expects principals to effectively supervise the compliance function, and failing to do so may have serious legal and reputational consequences. To help foster productive discussions between a firm’s principals and compliance, Kroll created a list of 13 conversation starters. The Hedge Fund Law Report recently spoke to Ken C. Joseph, managing director and head of the financial services compliance and regulation practice for the Americas at Kroll, about those questions. This second article in a two-part series covers the conversation about the importance of each question. The first article presented the discussion on the relationship between firm principals and compliance; why the 13 questions were created and how they are meant to be used; and the SEC’s likely view of a firm that uses such questions. For additional insights from Joseph, see “PLI Panel Provides Regulator and Industry Perspectives on Ethical and Compliance Challenges Associated With Hedge Fund Investor Relations” (Jun. 20, 2013).

Morgan Lewis Attorneys Discuss Strong Hedge Fund Performance and Innovative Structures (Part One of Two)

The hedge funds industry showed strong performance in the last year, despite the global pandemic and other challenges. In addition, innovative structures, such as customized vehicles, separately managed accounts (SMAs) and hybrid funds, showed growth and evolution. Those were some of the key takeaways from a panel at the recent Morgan Lewis Private Fund Investors Roundtable hosted by Morgan Lewis partner Jedd Wider. This first article in a two-part series discusses the thoughts from the Morgan Lewis partners on hedge fund performance, asset growth, investor allocation preferences, SMAs and hybrid funds. The second article will set forth the highlights from the panel on recent tax developments; investment issues involving China; and the evolving trade and sanctions landscape. See “Morgan Lewis Attorneys Discuss the Global ESG Landscape” (Aug. 19, 2021).

Preparing For and Facilitating the Digitization, Automation and Optimization of Compliance Programs

A recent ACA Group (ACA) panel explored ways compliance professionals can look ahead and prepare for the increasing digitalization of compliance; expectations for how technology can help firms prepare for regulatory examinations; methods to leverage firms’ existing platforms and resources; and tips for selecting new technologies and facilitating effective adoption by end-users. The program was moderated by Leigh Emery, director of ACA, and featured Allison Bernbach, senior counsel at Simpson Thacher, and Rosa Licea‑Mailloux, director of corporate compliance at MFS Investment Management. This article summarizes the key takeaways from the discussion. For additional insights from ACA, see our two-part series on its 2019 Alternative Fund Manager Survey: “SEC Exam Experience, Codes of Ethics, Electronic Communications and Expense Allocations” (Aug. 8, 2019); and “Insider Trading Controls, Cybersecurity, Valuation, Marketing and Custody” (Aug. 15, 2019).

SBAI Memos Discuss Implementation of Responsible Investing in Alternative Strategies

In March 2021, the Standards Board for Alternative Investments (SBAI) issued a Responsible Investment Policy Framework (Framework) to assist alternative investment managers in developing approaches to responsible investing. The SBAI recently issued four memos that discuss application of the Framework to equity long/short, credit, macro and systematic alternative strategies. Each memo addresses how responsible integration, responsible asset selection and responsible asset ownership can be used in the strategy it covers, as well as reporting and investor due diligence. This article distills the commonalities and differences among the four memos, with commentary from SBAI content/research director Maria Long and OMNIResearch Group co‑founder and director of research Dorien Nunez. See our two-part series on the evolving SEC approach to environmental, social and governance (ESG) investing: “SEC Commissioners Peirce and Roisman Argue Against Prescriptive ESG Disclosures” (Oct. 21, 2021); and “SEC Commissioners Gensler and Lee Advocate Further SEC Oversight of ESG Efforts” (Oct. 28, 2021); as well as our two-part coverage of IOSCO’s ESG consultation report: “Risk of Greenwashing and Regulatory Approaches” (Aug. 5, 2021); and “Investor Education, Impediments and Recommendations” (Aug. 19, 2021).

How Financial Institutions Should Strengthen Their Data Security to Comply With FTC’s Updated Safeguards Rule

The Federal Trade Commission (FTC) issued a final rule (Final Rule) amending the Standards for Safeguarding Customer Information, known as “the Safeguards Rule,” under the Gramm-Leach-Bliley Act. The Final Rule, which became effective on January 10, 2022 (Effective Date), requires non-banking financial institutions to develop, implement and maintain a comprehensive security system to keep their customers’ information safe. This article analyzes the Final Rule’s changes and offers practical steps fund managers can take to comply with the rule’s new requirements, some of which took effect on the Effective Date and others a year from then. For more on the FTC, see “In Third Point Settlement, FTC Takes Narrow View of ‘Investment Only’ Exemption to Hart-Scott-Rodino Premerger Notification Requirements” (Sep. 3, 2015).

Most-Read Articles