Hedge fund managers face an uncertain market and regulatory landscape in 2025 – especially with a new federal administration in the U.S. and a new SEC Chair – making it critical for CCOs to start the year off strongly. To that end, the Hedge Fund Law Report is recommending five steps that CCOs should take to start 2025 off right, along with five articles from the archives that provide guidance on those steps, which include creating a compliance calendar, preparing to send the Form ADV, Part 2A brochure to investors, reviewing marketing materials, preparing for the amended Form PF filing and conducting compliance training. The week starting January 13, 2025, the Hedge Fund Law Report will resume its normal bi-weekly publication schedule. Happy New Year! Read full article …

A compliance program is the core of a fund manager’s compliance efforts. However, once a manager has established a compliance program with appropriate policies and procedures, it must also implement that program effectively. An ACA Group (ACA) presentation that was part of its “Building a Gold Standard Compliance Program” series focused on two important elements of program implementation: compliance calendars and compliance testing. The program, which featured former ACA director, Cari Hopfensperger and former ACA director of thought leadership, Jaqueline Hummel, explored creating a compliance calendar; assigning responsibility for compliance; identifying common test areas; using trade blotters and other available information for testing; incorporating testing into the annual compliance review; and embedding compliance throughout an organization. The article synthesizes their insights. See our three-part series on tailoring a compliance program: “Why Fund Managers Should Customize” (Jul. 16, 2020); “What Fund Managers Should Consider” (Jul. 23, 2020); and “When Fund Managers Should Review and Update” (Jul. 30, 2020). Read full article …

Since 1979, the SEC has required registered investment advisers to deliver a written disclosure statement to clients pursuant to Rule 204‑3 under the Investment Advisers Act of 1940. Part 2A of Form ADV – commonly referred to as the “brochure” – sets out minimum requirements for that disclosure statement. Because Form ADV has been revised multiple times over the years, it is easy for fund managers to make mistakes on their Parts 2A, such as omitting required information or providing information that is inconsistent with other disclosures. Getting any part of Form ADV wrong can result in deficiency letters – and even enforcement actions. For example, in September 2022, the SEC resolved nine enforcement proceedings alleging violations of the Custody Rule and associated requirements and failures to promptly update their respective Forms ADV with accurate information about fund audits. A year later, the Commission resolved five additional enforcement proceedings arising out of that sweep. The article reviews the basics of Form ADV; discusses the possible consequences of mistakes on the filing; and provides a checklist developed by Victoria Hogan, president of NorthPoint Compliance and former SEC Examiner, that advisers can use to evaluate their own Parts 2A and ensure the forms are accurate and complete. “The checklist is more digestible than the SEC’s [Form ADV] directions. Advisers can also save the completed checklists to demonstrate – both internally and to the SEC – that they’ve reviewed their Parts 2A in a thoughtful way,” she explained. For another checklist created by Hogan, see “A Checklist for Advisers to Prepare Their Traders for SEC Exam Interviews” (Mar. 14, 2019). Read full article …

In the two years since the SEC adopted Rule 206(4)‑1 under the Investment Advisers Act of 1940 (Marketing Rule or Rule), its risk alerts, FAQs and enforcement activities have provided some clarity, but many questions remain, noted Julia Reyes, partner at ACA Group, during a program focused on best practices for complying with the Marketing Rule. Reyes, along with ACA Group director Matthew Shepherd and K&L Gates partners Lance C. Dial and Pamela A. Grossetti, provided practical guidance on meeting the Rule’s requirements for substantiation of material facts; testimonials and endorsements; performance claims; and hypothetical performance. The article distills their insights. See “Performance Advertising Is a Significant Pain Point Under the Marketing Rule” (Oct. 24, 2024); and “ACA Compliance Testing Survey: Marketing Rule Remains Top Compliance Focus” (Feb. 1, 2024). Read full article …

Among the many SEC rule proposals and finalizations that occurred in 2024, the SEC and CFTC jointly issued amendments (Amendments) to enhance private fund reporting on Form PF. Critically, the Amendments, which were published in the Federal Register on March 12, 2024, will take effect on March 12, 2025. Key changes effected by the Amendments include enhanced reporting by all advisers required to file Form PF; more granular reporting on hedge funds, including the exposures, positions and borrowings of large hedge funds; and disaggregated reporting on fund structures. This is the third round of amendments to Form PF in the last two years. The first article in our two-part coverage discusses the Amendments. The second article provides key takeaways and next steps for hedge fund managers. See our two-part series on the originally proposed amendments to Form PF: “Overview and Goals” (Sep. 15, 2022); and “Rationale, Commissioner Views and Need for Comments” (Sep. 22, 2022). Read full article …

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. That is, managers must have compliance programs. Interestingly, neither the Compliance Rule nor its adopting release states that managers must provide training on their compliance programs. Without proper training, however, employees will not know what the manager’s policies and procedures are or how to comply with them. Moreover, the SEC clearly expects managers to provide compliance training. The first article in a two-part series explains the SEC’s expectations as to compliance training and provides three traps to avoid in terms of the substance of a fund manager’s training. The second article discusses who conducts the compliance training and identifies five traps to avoid when providing training. See “High- and Low-Tech Innovations for Fund Managers to Overcome Compliance Training’s Drawbacks” (Feb. 1, 2018); and “Early and Often: Compliance Training Pays Big Dividends for Private Fund Advisers” (Jul. 8, 2009). Read full article …