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Introduction and Overview of 40 Act Liquid Alternative Funds
fund, but with the addition of a custodian, onshore
board of directors and transfer agent to oversee the
activities of the fund. The expense for these three
new fund-level requirements is borne by the investors
and charged to the fund, which puts an additional fee
layer onto the fund.
Key Service Providers
Compliance requirements apply to both the
investment adviser and the IM, and are defined and
governed by the SEC. For hedge fund managers who
have registered as investment advisers following
the implementation of the Dodd-Frank changes to
the Advisors Act, the requirements will already be in
place and well understood. The investment adviser
must name a chief compliance officer and maintain
detailed policies and procedures for all aspects of the
fund’s operations and governance.
The additional requirements dictated by the ’40 Act
apply to the governance of the fund and focus on
the activities of the board and its oversight of the
compliance function of the investment adviser, the
fund sponsor, the fund administrator and the transfer
agent. The rules cover reviews and approvals for
policies and procedures, the sign-off process for
the annual fund report, validation of pricing and
valuation policies and reviews of the subscription
and redemption process for fund shares. The board
is therefore an active and integral part of the fund
management process, and the relationship between
the board and the key service providers is important
to recognize and understand.
These requirements will be new to hedge fund
managers and should be reviewed in detail with a
qualified compliance consultant. For introductions
and referrals to experts in this new requirement,
please contact us at prime.advisory@citi.com.