Preface xi
Chapter 1 Introduction to Hedge Fund Compliance 1
Introduction 1
Differences in Hedge Fund and Other Alternative Fund Compliance 1
Hedge Fund Compliance Is Not Specific to One Country 4
Do Alternative Investments Merit Special Compliance Considerations? 5
Understanding the Hedge Fund Compliance Framework 9
Introduction to the Hedge Fund Compliance Function 10
Distinguishing the Legal and Compliance Departments 11
Key Players in Compliance 12
Standard Areas Covered by a Hedge Fund Compliance Function 14
Compliance Function Roles and Authority 16
Chapter Summary 17
Notes 17
Chapter 2 Introduction to Hedge Fund Regulation and Examination 18
Introduction 18
Different Types of Regulation for Different Financial Entities 18
Why Regulation Is Needed 20
Where Do Compliance Rules Come From? 22
National and Global Jurisdiction 23
Common Regulatory Interaction with Hedge Funds 24
Regulatory Examinations 25
Chapter Summary 28
Notes 28
Chapter 3 The Chief Compliance Officer and Regulatory Reporting 30
Introduction 30
Introducing the Chief Compliance Officer 30
Regulatory Reporting 34
Regulatory Reporting in Multiple Jurisdictions 34
Common Regulatory Reporting Questions 35
A Multistep Process 35
Chapter Summary 40
Notes 41
Chapter 4 In-House Compliance Professionals and Hedge Fund Committees 42
Introduction 42
Common Compliance Function Tasks 43
Firm Committees as Compliance Mechanisms 49
Chapter Summary 53
Note 54
Chapter 5 Hedge Fund Compliance Technology 55
Introduction 55
Understanding the Hedge Fund Information Technology Function 55
Primary Compliance Uses of Technology 58
Compliance Considerations for Use of Electronic Data 59
Compliance Oversight of Nonelectronic Data 64
Business Continuity and Disaster Recovery Planning 64
Chapter Summary 65
Notes 66
Chapter 6 Compliance Consultants and Other Compliance-Related Service Providers 67
Service Provider Compliance 67
Classification of Compliance Service Providers 67
Service Provider Compliance Work 68
Hedge Fund Compliance Consultants 69
Chapter Summary 82
Note 82
Chapter 7 Understanding Key Compliance Documentation 83
Reasons for Documenting Compliance Policies and Procedures 83
Understanding the Goals of Compliance Documentation 84
Jurisdictional Differences in Compliance Documentation 85
Understanding Boilerplate Documentation 85
Core Compliance Documentation 88
Chapter Summary 97
Note 98
Chapter 8 Investor Evaluation of Hedge Fund Compliance Functions 99
Introduction 99
Compliance Evaluations in Investor Due Diligence 99
Initial and Ongoing Compliance Analysis 101
Evaluating Best Practice Compliance 104
Key Compliance Analysis Areas 109
Chapter Summary 118
Note 118
Chapter 9 Case Studies and Example Scenarios in Hedge Fund Compliance 119
Introduction 119
Compliance Scenario 1 119
Compliance Scenario 2 122
Case Studies 123
Chapter Summary 129
Notes 129
Chapter 10 Common Compliance Pitfalls and How to Avoid Them 131
Introduction 131
Pitfall 1: Small Firms Build Large Firm Compliance Infrastructures 131
Pitfall 2: Underspending on Compliance 133
Pitfall 3: Lack of Independent Compliance Reporting 134
Pitfall 4: Outsourcing All Compliance 135
Pitfall 5: Relying on Technology and Compliance Automation 136
Pitfall 6: Letting Investor Opinion Drive Compliance Priorities 137
Chapter Summary 138
Notes 139
Chapter 11 Interviews with Compliance Service Providers 140
Introduction 140
Interview with Kent Wegrzyn (ACA Compliance Group) 140
Interview with Vinod Paul (Eze Castle Integration) 160
Chapter Summary 171
Chapter 12 Trends and Future Developments 172
Introduction 172
Chief Compliance Officers Personal Liability Concerns 172
Increased Senior Manager Regulatory Accountability 174
Compliance-Related Insurance 175
Increasingly Coordinated Hedge Fund Regulation in Europe 176
Chapter Summary 177
Notes 178
About the Author 181
Index 183
