Publications

Recent Areas of Focus in SEC Examinations of Hedge Fund Advisers

September/October, 2009
Practical Compliance & Risk Management For The Securities Industry

Hedge fund advisers continue to be a significant priority for the Securities and Exchange Commission (the "SEC") in its rulemaking, enforcement, and examination efforts.

The purpose of this article is to identify and discuss recent areas of focus in SEC examinations of hedge fund advisers and recommend possible steps hedge fund advisers can take to prepare for and manage an SEC examination. Four areas that OCIE has indicated it will focus on when examining hedge fund advisers are:

• the possibility of preferential treatment in redemptions;
• side pocket arrangements;
• insider trading; and
• activities outside of disclosed strategies.
  

The article also briefly touches on a number of other issues SEC examiners are addressing during examinations of hedge fund advisers:

• custody and controls over investor assets;
• controls over valuation;
• supervision and compliance;
• revenue sharing; and
• performance reporting.