Hedge Fund Compliance

Because hedge funds are considered an alternative investment vehicle, there are additional risks above and beyond the typical investment opportunity.

Big risks can result in big returns or losses but because these are private, not public, investment vehicles, though they are not required to register with the securities and exchange commission (SEC) – the agency put in place to protect the common investor. But, hedge funds don’t get off the regulation hook completely.

What is Driving the Need for Hedge Fund Compliance?

The SEC is watching hedge funds with increasingly sharp eye, looking for signs of fraud or insider trading. Of course, the most famous of hedge fund fraud, is the Bernie Madoff case where he put together a Ponzi scheme and defrauded friends, family and investors alike. A Ponzi scheme, named after a investor by the name of Charles Ponzi, is when one investor is paid returns based on future investors’ investments (instead of actual returns).

Hedge fund investors are now looking for more than just the promise of significant returns, they are looking for transparency.

What is Involved in Hedge Fund Compliance?

Hedge fund compliance firms specialize in ensure a fund is complying to the SEC regulations. The areas of compliance often include avoiding conflicts of interest, risk management guidelines, full disclosure reporting and establishing effective internal operations.

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