Paul N. Roth and Marc E. Elovitz of Schulte Roth & Zabel LLP., commented on the areas the SEC has been focusing on recently.

Hedge fund advisers continue to be a significant priority for the Securities and Exchange Commission (the “SEC”) in its rulemaking, enforcement, and examination efforts.

“The purpose of this article is to identify and discuss recent areas of focus in SEC examinations of hedge fund advisers and recommend possible steps hedge fund advisers can take to prepare for and manage an SEC examination.” The Law team said.

Four areas that OCIE has indicated it will focus on when examining hedge fund advisers are:

*the possibility of preferential treatment in redemptions;
*side pocket arrangements;
*insider trading; and
*activities outside of disclosed strategies.

The article also briefly touches on a number of other issues SEC examiners are addressing during examinations of hedge fund advisers:

*custody and controls over investor assets;
*controls over valuation;
*supervision and compliance;
*revenue sharing; and
*performance reporting.

The Article appears in the September/October 2009 edition of Practical Compliance & Risk Management for the Securities Industry.