Mandatory Registration Requirement Imminent

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Regulatory Update, October 2009

I'm pleased to provide ICSGroup's latest regulatory update. In this issue we cover several hot topics in the investment industry that could potentially impact private equity and hedge funds. As always, feel free to call or e-mail me if you ever have a question about anything covered in this update.

In This Issue

Mandatory Registration Requirement Imminent

Top 10 Reasons Why You Need a Compliance Consultant

Proposed "Pay-to-Play" Regulations: Implications for Investment Advisers

ICSGroup Highlights

Mandatory Registration Requirement Imminent

The SEC recently proposed legislation that would require advisers of private funds with more than $30 million in AUM to register with the SEC. Private funds include, but are not limited to, hedge funds and private equity funds. Venture capital funds have been expressly excluded from the proposed bill. This proposed bill comes on the heels of a proposal from the US Department of Treasury that called for all managers of "private pools of capital" to register with the SEC as an investment adviser if they meet a relatively low assets-under-management threshold.

Newly registered advisors would be subject to the multitude of requirements under the Investment Advisor's Act, including the prohibition on carried interest (or other performance-based compensation), maintenance of a compliance manual and code of ethics, recordkeeping, disclosures to investors, annual compliance training, annual compliance reviews, compliance examinations by the SEC and designation of a chief compliance officer with regulatory expertise.

SEC Chairman Mary Schapiro has estimated that 2000 new advisers will become registered as a result of this new registration mandate. While this mandate may appear onerous for small to mid-sized firms, the use of a compliance consultant can ease the burden, both administratively and financially. ICSGroup can help firms with the registration process as well as the regulatory requirements.

The Top 10 Reasons Why You Need A Compliance Consultant

10. Your CFO is also your compliance officer and he/she lacks significant compliance experience.

9. Your firm's compliance manual has not been updated in years.

8. Your firm's marketing materials are not being reviewed, approved and retained by a qualified person.

7. Your firm does not have a documented policy and procedures governing the giving and receiving of gifts and entertainment.

6. Annual compliance training requirement? We're required to have compliance training every year?

5. Your firm has not had a thorough, well-documented annual compliance review as required by the Investment Advisor's Act.

4. You consider private equity to be "low risk" so you're hesitant to invest in an effective compliance program.

3. A successful independent review of your compliance program bolsters your standing with pension fund investors.

2. You think your firm is in compliance but it sure would give you peace of mind to have your compliance program validated by an independent compliance consultant.

And the #1 reason why your firm needs a compliance consultant is. . .

1. If your firm is ever involved in a regulatory scandal, you can kiss your hard-earned reputation good-bye.

Proposed "Pay-to-Play" Regulations: Implications for Investment Advisers

The SEC recently published a proposed rule governing "pay-to-play" practices by investment advisers to "covered pooled assets" in which a governmental entity invests or is solicited to invest.

The proposed rule defines "pay-to-play" activity as:

making a contribution to certain elected officials or candidates;
soliciting from others, or coordinating, contributions to certain elected officials, candidates or political parties where the advisor is providing or seeking government business;
providing or agreeing to provide, directly or indirectly, payment to any third party, i.e., placement agents, solicitors or similar parties, for a solicitation of advisory business from any governmental entity on behalf of the investment adviser

The rule also prohibits fund advisors from paying third-party placement agents, solicitors, finders or similar parties to solicit a governmental agency. Governmental agency's would apparently include state universities' endowment funds.

Investment advisers who "pay-to-play", either directly or indirectly, are prohibited from receiving compensation for its advisory services for that governmental entity for a period of two years after the advisor or certain of its executives or employees make such a payment.

Interestingly, the proposed rule does not prohibit political contributions; rather, it prohibits the receipt of compensation for advisory services following payment of such contribution.

The public comment period closed on October 6 with more than 80 comment letters posted on the SEC's website. A number of state plans, including Connecticut, Wisconsin, South Dakota, and Missouri have submitted letters opposing the ban on the use of placement agents. A final rule is expected prior to year end.

Integrated Compliance Solutions Group LLC ("ICSGroup") is a regulatory compliance consulting firm specializing in providing '33 Act, '34 Act, Investment Advisor's Act and industry best practice compliance support to the investment management industry.

Our target clients include: registered investment advisers, private equity funds, hedge funds, mutual funds, broker-dealers and pension funds. We are a high quality, cost-effective outsourced compliance solution to complement in-house compliance staff. ICSGroup is minority owned and managed.

Visit us at www.i-c-solutions.net to learn more.

ICSGroup Highlights

Have you satisfied your annual compliance training requirement?

Let ICSGroup develop a customized compliance training program and train your staff on the key parts of your firm's compliance manual and code of eithcs.

Find out more

ICSGroup Now Handles SEC Registrations

In response to increasing demand for SEC registrations, ICSGroup now provides this valuable service. As always, you'll get high quality service at a

reasonable cost.

Contact us for more information

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