April 11 2011 Presented by Bart Mallon Mallon PC Overview New Investment Adviser Registration Rules Overview of Registration Process Compliance Requirements Recent Regulatory Actions Other Items ID: 757248
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Slide1
Compliance Update for California Hedge Funds
April 11, 2011
Presented by Bart Mallon
Mallon P.C.Slide2
Overview
New Investment Adviser Registration Rules
Overview of Registration Process
Compliance Requirements
Recent Regulatory Actions / Other Items
Questions & AnswersSlide3
New Regulations - SEC
New
Regulations Requiring Registration
Not Finalized (out by July 21, 2011)
Asset Threshold
Under $100M AUM – State Registration (if required by state)
$100M
AUM
w/
SMA
clients – SEC Registration
$100-$150M
AUM
w/ only Hedge Fund clients – no SEC registration requirement (may be subject to state registration)
$150M
AUM
w/ only Hedge Fund clients – SEC Registration
Timing Issues
Likely no registration requirement until 1
st
Quarter 2012
Other New Regulations
New Exempt Reporting
Adviser – less than $150M, VC fund managers
New Form ADV Part 2 – update was due March 31
New Form
PF
Custody Issue –
PCAOB
Registered & Inspected Audit Firm
Annual Audit or
Quarterly Reporting & Surprise ExaminationSlide4
New Regulations - California
Current CA Exemption – (CCR Section 206.204.9)
Has AUM of $25M or
Manager to Venture Capital fund
Overview of NASAA Proposed Regulation
Not subject to disqualification
(criminal, civil, regulatory)
Solely
advise
Section 3(c)(7) funds
File condensed Form ADV
Fees
California Invitation for Comments
Asks about 3(c)(7)
or 3(c)(1) managers
Should they all be “qualified clients”
Questions - statutory disqualification;
asset threshold; annual audit, NASAA proposalSlide5
California Registration Process
IA Representative
Provides advice/ makes recommendations
Manages
accounts or portfolios of
clients
Solicits
, offers, or negotiates for the sale or sells investment advisory
services
, or
Supervises
employees who perform any of the
foregoing
S
ilent
owners with 25% or more ownership (reporting on ADV)
License Requirement
Series 65 or Series 66 (if you already have the Series 7)
Other:
Certified Financial Planner (CFP), Chartered
Investment
Counselor (CIC), Chartered Financial Consultant (
ChFC
), Personal Financial
Specialist
(PFS), or Chartered Financial Analyst (CFA
)
Regulatory Fees - Firm - $125, Individual - $25
Exams – depends on exam (usually around $125)
Timing – usually 6-12 weeks, depends on number of items
Net worth/ Custody Issue
Net Worth Requirement - Discretionary Authority - $12,000; Custody - $42,000
Gatekeeper – disbursements agreement with third party
If “custody” and no gatekeeper – $42,000 & surprise examination
If “custody” and gatekeeper - $12,000 & no surprise examination
Common Pitfalls
D
isclosure issues
Review of IA contractSlide6
Compliance Requirements
Compliance Manual/ Code of Ethics (CCR Section 260.238.1)
P
rofessional standards of conduct (fiduciary duty)
I
nsider trading policies (protection of material, non-public information)
P
ersonal trading policies
Privacy policy
Soft Dollars
Books and Records (CCR Section 260.241.3)
Records – client, fund, firm financial, trading, employee, advertising, compliance
Easily
accessible
May be maintained by any electronic storage media available so long as such records are available for immediate and complete access
Held for 5 years, first 2 years in an easily accessible place
Must preserve for at least 3 years after the termination
Periodic Compliance Obligations
Daily, Monthly, Quarterly
Annually
ADV
Annual Updating Amendment / Annual Fees
Annual review of compliance policies and procedures; code of ethics
Annual notice of privacy policy
Custody requirement (annual report or audit confirmation to state)
Fund
specific -
Blue
sky
filings, Form
D amendmentSlide7
Regulatory Actions/ Other Issues
Futures – Registration, Recent
CFTC
Proposal
Expert
Networks/ Insider
Trading
SEC Action
MA
Action
Pay to Play
Form ADV Part 2
Side-Letter Deals
Mock Audit
Compliance program in placeSlide8
Thank You For Joining
For further information, please feel free to contact any of the following groups:
Patke
& Associates
Woodfield
Fund Administration Mallon P.C.
Ron Niemaszyk
Frank Franiak
Bart Mallon
300 Village Green Dr., Ste 210 3601 Algonquin Road, Suite 900 150 Spear Street, Suite 825
Lincolnshire, IL 6006 Rolling Meadows, IL 60008 San Francisco, CA 94105
Phone:
847-382-1627
Phone:
847-385-2203
Phone: 415-868-5345
Questions From Audience