Tuesday, 22 July 2014
Last updated 8 hours ago
Mar 20 2013 | 12:12am ET
Hedge fund managers newly registered with the Securities and Exchange Commission may want to rethink those junket plans.
The regulator is zeroing in on fees and expenses hedge funds and private equity firms charge their clients as part of the "presence exams" they are making in the wake of the Dodd-Frank financial regulation reform, which requires larger hedge funds to register with the SEC. In particular, "exotic expenses"—travel, dining, entertainment and consulting arrangements—are drawing scrutiny.
The SEC hasn't said such potentially lavish expenses are out-of-bounds, although it may make recommendations regarding them over the next two years. But the agency can insist that a firm reimburse expenses if they are deemed inappropriate.
For the most part, however, the SEC seems primarily to be digging in to expenses that are not broken out in hedge fund disclosures, asking for a breakdown. In some cases, the examiners may ask why a firm chose to use a private jet or fly executives first-class on clients' dime; in at least one case, the SEC asked for receipts for air travel and an agenda for the meeting traveled to, to ensure that charge to investors "really was the expense the fund was claiming," Simon Compliance founder Lindsey Simon told The Wall Street Journal.
"As fiduciaries, hedge fund advisers need to develop policies and procedures that allocate their fees and expenses fairly," the SEC said.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…