Investment Adviser Compliance Requirements for Managers of Hedge Funds

Abstract

One of the more significant aspects of registration is a rule that requires investment advisers to 1) implement written compliance policies and procedures designed to prevent, detect, and correct violations of the Advisers Act by the investment adviser and its supervised persons; 2) review these policies and procedures at least annually for adequacy and effectiveness; and 3) designate a chief compliance officer who is responsible for administering these policies and procedures (the “Compliance Rule”). The various compliance policies and procedures are usually compiled and maintained by investment advisers in a “compliance manual.” Prior to the adoption of the Compliance Rule, the Advisers Act required specific written policies in only a few particular areas. This article examines issues in the context of designing the compliance manual. These include among others portfolio management processes and trading practices including personal trading activities of supervised persons and soft dollar benefits.