Hedgies on the Hot Seat
We have met the enemy, and they are us
-Bartleby
Hijinks are nothing new to the hedge fund industry, but hedgies have only recently been paying lip service to self-regulation. But the industry is maturing, and compliance and operations are a big part of building a successful operation. It is tough sledding however; even the good folks at Och-Ziff have had growing pains building out the side of the business that not long ago was seen as little more than an expense line.
Grappling with the global capital markets is tough. But dealing with a pissed off SEC is tougher…
The U.S. Securities and Exchange Commission is conducting more than 30 investigations into potential hedge fund manager misconduct in the northeast United States alone, with more in other parts of the country, officials said on Wednesday.
The investigations into potential insider trading, faulty asset valuation, conflicts of interest and other misdeeds are under way despite the agency’s setback last year when a federal court struck down a rule requiring the lightly regulated hedge funds to register as investment advisers.
“Whether you are registered or not, we at the enforcement division believe we have the tools to detect insider trading,” Bruce Karpati, New York-based assistant regional director for the SEC’s Division of Enforcement, said at a hedge fund conference in Connecticut.
“There are obviously active investigations on this front.” Reuters
The CFA Institute has been urging for the industry to adopt steps toward self-regulation, and is proposing a code of conduct for hedge fund managers.
This self-regulatory template, the Asset Manager Code of Professional Conduct, focuses on setting a baseline for compliance, professional conduct and investor protections.
In our experience, self-regulation requires certain components. In the case of hedge funds, it depends on developing an honest and verifiable template that covers client loyalty, trading practices and compliance procedures, as well as a comprehensive process for disclosures, portfolio valuation and performance reporting. CFA Institute
While two “blue-ribbon panels” garnered headlines this week as they attempt to tackle oversight issues, bloodthirsty regulators are out for blood in the leafy confines of Greenwhich:
Connecticut Attorney General Richard Blumenthal, an outspoken advocate on the need for more industry regulation, said the probes are likely to bear fruit in states like his, home to scores of multibillion-dollar hedge funds.
“There are indications that the investigations will be very productive,” Blumenthal said in a keynote speech at the event.
A spokesman for the SEC said the agency is conducting more than 30 investigations into possible hedge fund manager misconduct in the Northeast alone, with others elsewhere.
Although the might not be carted off the premises in handcuff like Bud Fox, hedgies might soon join their vanilla counterparts at mutual funds. Which means endless stacks of compliance forms, mandatory meetings and other time consuming activities that take you away from your trading turrets.
SEC steps up probes of hedge insider trading
Reuters
August 20th
Hedge Fund’s Next Problem
1440 Wall Street
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