Champ Warns Registered Alts to Upgrade Compliance
Norm Champ, the Director of the SEC’s Division of Investment Management, recently warned hedge fund managers seeking to launch alternative mutual funds that they need to upgrade their compliance programs. Mr. Champ highlighted some of the significant additional regulatory requirements under the Investment Company Act including the much more restrictive affiliate transaction rules and limits on performance fees. Mr. Champ explained that the compliance rule for registered funds is more expansive than an adviser-only compliance program. Most significantly, the fund must have its own CCO, who reports to the Board. Mr. Champ warned: “Merely “tacking on” new policies and procedures to the adviser’s existing program, without considering the overall impact to the adviser’s business model, may increase the risk of compliance weaknesses, deficiencies or violations.”
OUR TAKE: Sponsoring a fund registered under the Investment Company Act will entail a complete overhaul and upgrade of a firm’s compliance infrastructure. Moreover, it will require ongoing support by professionals with registered fund experience.