Sunday, September 18, 2005
SEI Checklist of HF Pre-SEC Registration Issues
SEC Registration Has Broad Business Implications for Hedge Funds, States SEI Investments
SEI Identifies Top 10 Issues to Resolve Before Registering
OAKS, Pa., Sept. 14 /PRNewswire-FirstCall/ -- Hedge funds planning to register with the SEC must be proactive in crafting policy frameworks to fit new regulatory demands or risk damage to their reputation and lost business opportunities, according to SEI Investments (Nasdaq: SEIC), a leading global provider of asset management services and investment technology solutions. The advice, along with 10 critical issues for hedge fund managers to address in those policies, came from regulatory experts at a recent web seminar hosted by the SEI Knowledge Partnership.
The session provided SEI's hedge fund clients a roadmap leading up to the February 1, 2006 deadline for SEC registration. Nearly all hedge fund advisers will be subject to the registration requirement adopted by the SEC earlier this year. Panelists outlined a series of recommendations which are detailed in an SEI white paper, entitled "Countdown to Hedge Fund Adviser Registration: Essential Steps to Take Now."
"It would be a mistake to think of registration as merely an exercise in completing paperwork. It is about getting your business ready to operate in a regulated environment - and many aspects of that will be new to previously unregistered advisers," said Jim Volk, Chief Accounting Officer and Chief Compliance Officer for SEI's Investment Manager Services business.
Volk cited conflicts of interest, a code of ethics requirement, record- keeping obligations and e-mail retention among areas in which hedge funds will need to focus on changing practices.
Paul Schaeffer, Director of the SEI Knowledge Partnership, observed that new disclosure and code of ethics requirements will require that hedge fund partners and employees disclose their personal holdings and trades. "This introduces a level of scrutiny hedge fund advisors are not accustomed to," said Schaeffer. "In the bigger picture, it will mean hedge funds have to undergo a major cultural shift that could affect many aspects of their operations."
The seminar panelists identified ten key issues hedge funds must address in their policies and procedures:
1. Conflicts of interest. Conflicts include those implicated by an
adviser's brokerage practices, especially concerning the use of soft
dollars. "It's critical that your soft dollar agents be consistent
with your obligation to pursue 'best execution,'" said Phil
Masterson, an SEI in-house attorney, who observed that a pending rule
is likely to limit the use of soft dollars to research reflecting
unique intellectual content.
2. Trade allocation practices, which must be "fair and equitable" to
each client over time. Consistency is important and exceptions, in
the rare instances that they occur, should be documented and
disclosed.
3. Handling of trading errors. There are several things managers should
avoid, including using soft dollars to compensate a broker for
absorbing a loss and reallocating erroneous trades among clients.
4. "Side letter" provisions providing preferential treatment for some
clients -- especially those concerning liquidity and transparency.
Consider alternative ways of handling preferential terms and make
sure to add disclosures where appropriate.
5. Third-party marketing. To avoid the risk of lawsuits, hedge funds
should only pay for capital introductions made by a broker-dealer
registered in the state where the introduction was made, said Steven
B. Nadel, a Partner at the law firm of Seward & Kissel, LLP.
6. Personal trading by adviser personnel. A code of ethics should be
written to address issues concerning short selling, accepting gifts
and trading restricted stock, and cover employees and their families
as well.
7. Valuation practices, which can raise conflicts of interest. The SEC
has become very aware of this issue and registered advisors will need
to quickly develop protocols for every possible scenario that might
occur.
8. Adviser performance advertising, which cannot include testimonials,
"cherry-picking," or any false or misleading statements.
9. Proxy voting procedures. Disclosure and documentation are key here.
10. E-mail retention, which raises questions such as the scope of e-mails
the SEC can examine and whether hedge funds should conduct monitoring
and surveillance of their e-mail. "Internal training programs on the
use of e-mail is absolutely critical, so that employees consider in
advance what gets put into e-mail," said Schaeffer.
Still, panelists suggested hedge fund managers have no reason to avoid registering. "If you're going after institutional money, clients will expect you to be registered. And even if you're exempt for some reason like having a two-year lockup, they will still expect to see policies that satisfactorily address every significant issue," said Nadel. He said being registered would also permit hedge funds to raise more ERISA money than is currently allowed.
The SEI Web seminar was the eighth in a compliance series held by the SEI Knowledge Partnership in collaboration with SEI's ComplianceAdvantage program. In addition, this is the sixth white paper on regulatory challenges published by the Knowledge Partnership. The white paper is available by e-mailing SEIKnowledgePartnership@seic.com.
About The SEI Knowledge Partnership
The SEI Knowledge Partnership provides SEI's investment manager clients with actionable business intelligence on issues in the areas of compliance; business operations and outsourcing; marketing, sales, distribution, and client service; and business strategy. Through ComplianceAdvantage, SEI offers comprehensive compliance services, guidance, and one-on-one support. Both programs are initiatives of the Investment Manager Services unit of SEI Investments, which provides integrated operating solutions to traditional and alternative investment management organizations.
About SEI
SEI Investments (Nasdaq: SEIC) is a leading global provider of asset management services and investment technology solutions. The company's innovative solutions help corporations, financial institutions, financial advisors, and affluent families create and manage wealth. As of the period ending June 30, 2005, through our subsidiaries and partnerships in which we have a significant interest, SEI administers $312.0 billion in mutual fund and pooled assets, manages $130.7 billion in assets, and operates 22 offices in 12 countries. For more information, visit http://www.seic.com.
Company Contact Media Contact
Dana Grosser Jason Rocker
SEI Investments Braithwaite Communications
610-676-2459 215-564-3200 x 10
dgrosser@seic.com jrocker@braithwaitepr.com
SOURCE SEI Investments
-0- 09/14/2005
/CONTACT: Company Contact: Dana Grosser, SEI Investments,
+1-610-676-2459, dgrosser@seic.com; or Media Contact: Jason Rocker,
Braithwaite Communications, +1-215-564-3200 x 10, jrocker@braithwaitepr.com/
/Web site: http://www.seic.com /
(SEIC)
CO: SEI Investments
ST: Pennsylvania
IN: FIN MFD
SU: SVY
PD
-- PHW020 --
2092 09/14/2005 10:52 EDT http://www.prnewswire.com
SEI Identifies Top 10 Issues to Resolve Before Registering
OAKS, Pa., Sept. 14 /PRNewswire-FirstCall/ -- Hedge funds planning to register with the SEC must be proactive in crafting policy frameworks to fit new regulatory demands or risk damage to their reputation and lost business opportunities, according to SEI Investments (Nasdaq: SEIC), a leading global provider of asset management services and investment technology solutions. The advice, along with 10 critical issues for hedge fund managers to address in those policies, came from regulatory experts at a recent web seminar hosted by the SEI Knowledge Partnership.
The session provided SEI's hedge fund clients a roadmap leading up to the February 1, 2006 deadline for SEC registration. Nearly all hedge fund advisers will be subject to the registration requirement adopted by the SEC earlier this year. Panelists outlined a series of recommendations which are detailed in an SEI white paper, entitled "Countdown to Hedge Fund Adviser Registration: Essential Steps to Take Now."
"It would be a mistake to think of registration as merely an exercise in completing paperwork. It is about getting your business ready to operate in a regulated environment - and many aspects of that will be new to previously unregistered advisers," said Jim Volk, Chief Accounting Officer and Chief Compliance Officer for SEI's Investment Manager Services business.
Volk cited conflicts of interest, a code of ethics requirement, record- keeping obligations and e-mail retention among areas in which hedge funds will need to focus on changing practices.
Paul Schaeffer, Director of the SEI Knowledge Partnership, observed that new disclosure and code of ethics requirements will require that hedge fund partners and employees disclose their personal holdings and trades. "This introduces a level of scrutiny hedge fund advisors are not accustomed to," said Schaeffer. "In the bigger picture, it will mean hedge funds have to undergo a major cultural shift that could affect many aspects of their operations."
The seminar panelists identified ten key issues hedge funds must address in their policies and procedures:
1. Conflicts of interest. Conflicts include those implicated by an
adviser's brokerage practices, especially concerning the use of soft
dollars. "It's critical that your soft dollar agents be consistent
with your obligation to pursue 'best execution,'" said Phil
Masterson, an SEI in-house attorney, who observed that a pending rule
is likely to limit the use of soft dollars to research reflecting
unique intellectual content.
2. Trade allocation practices, which must be "fair and equitable" to
each client over time. Consistency is important and exceptions, in
the rare instances that they occur, should be documented and
disclosed.
3. Handling of trading errors. There are several things managers should
avoid, including using soft dollars to compensate a broker for
absorbing a loss and reallocating erroneous trades among clients.
4. "Side letter" provisions providing preferential treatment for some
clients -- especially those concerning liquidity and transparency.
Consider alternative ways of handling preferential terms and make
sure to add disclosures where appropriate.
5. Third-party marketing. To avoid the risk of lawsuits, hedge funds
should only pay for capital introductions made by a broker-dealer
registered in the state where the introduction was made, said Steven
B. Nadel, a Partner at the law firm of Seward & Kissel, LLP.
6. Personal trading by adviser personnel. A code of ethics should be
written to address issues concerning short selling, accepting gifts
and trading restricted stock, and cover employees and their families
as well.
7. Valuation practices, which can raise conflicts of interest. The SEC
has become very aware of this issue and registered advisors will need
to quickly develop protocols for every possible scenario that might
occur.
8. Adviser performance advertising, which cannot include testimonials,
"cherry-picking," or any false or misleading statements.
9. Proxy voting procedures. Disclosure and documentation are key here.
10. E-mail retention, which raises questions such as the scope of e-mails
the SEC can examine and whether hedge funds should conduct monitoring
and surveillance of their e-mail. "Internal training programs on the
use of e-mail is absolutely critical, so that employees consider in
advance what gets put into e-mail," said Schaeffer.
Still, panelists suggested hedge fund managers have no reason to avoid registering. "If you're going after institutional money, clients will expect you to be registered. And even if you're exempt for some reason like having a two-year lockup, they will still expect to see policies that satisfactorily address every significant issue," said Nadel. He said being registered would also permit hedge funds to raise more ERISA money than is currently allowed.
The SEI Web seminar was the eighth in a compliance series held by the SEI Knowledge Partnership in collaboration with SEI's ComplianceAdvantage program. In addition, this is the sixth white paper on regulatory challenges published by the Knowledge Partnership. The white paper is available by e-mailing SEIKnowledgePartnership@seic.com.
About The SEI Knowledge Partnership
The SEI Knowledge Partnership provides SEI's investment manager clients with actionable business intelligence on issues in the areas of compliance; business operations and outsourcing; marketing, sales, distribution, and client service; and business strategy. Through ComplianceAdvantage, SEI offers comprehensive compliance services, guidance, and one-on-one support. Both programs are initiatives of the Investment Manager Services unit of SEI Investments, which provides integrated operating solutions to traditional and alternative investment management organizations.
About SEI
SEI Investments (Nasdaq: SEIC) is a leading global provider of asset management services and investment technology solutions. The company's innovative solutions help corporations, financial institutions, financial advisors, and affluent families create and manage wealth. As of the period ending June 30, 2005, through our subsidiaries and partnerships in which we have a significant interest, SEI administers $312.0 billion in mutual fund and pooled assets, manages $130.7 billion in assets, and operates 22 offices in 12 countries. For more information, visit http://www.seic.com.
Company Contact Media Contact
Dana Grosser Jason Rocker
SEI Investments Braithwaite Communications
610-676-2459 215-564-3200 x 10
dgrosser@seic.com jrocker@braithwaitepr.com
SOURCE SEI Investments
-0- 09/14/2005
/CONTACT: Company Contact: Dana Grosser, SEI Investments,
+1-610-676-2459, dgrosser@seic.com; or Media Contact: Jason Rocker,
Braithwaite Communications, +1-215-564-3200 x 10, jrocker@braithwaitepr.com/
/Web site: http://www.seic.com /
(SEIC)
CO: SEI Investments
ST: Pennsylvania
IN: FIN MFD
SU: SVY
PD
-- PHW020 --
2092 09/14/2005 10:52 EDT http://www.prnewswire.com
