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SEC Director: Chief Compliance Officers Are Important

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NEW YORK ( — Putting in place a competent and empowered chief compliance officer is one of the more important tasks facing hedge fund firms, said Gene Gohlke, associate director for investment company and adviser compliance at the Securities and Exchange Commission.

With only nine months to the February 2006 registration deadline, hedge funds have a lot to do, from finding a CCO to preparing an ethics manual. “The clock is ticking,” Mr. Gohlke warned, speaking at a seminar organized by the Managed Funds Association.

During the 2003-2004 debate that preceded the decision to require most hedge fund managers to register as investment advisers, the SEC claimed that the cost to firms would be minimal and no separate CCO would need to be hired. In smaller firms, it is common for one person to be both chief operating officer and CCO.

But now that mandatory registration has become a fact of life, the regulatory agency is sending the message that merely appointing somebody in the firm as compliance officer can raise conflict-of-interest questions.

Unless policies are established on those conflicts, the double-duty arrangement might not pass muster when the SEC comes in for an examination.

Industry people say CCO salaries are in the US$200,000-$300,000 range. Mr. Gohlke said a CCO need not be a lawyer but needs to know the Advisers’ Act. In practice, many hedge funds are hiring lawyers for this role.

He said a CCO should be pro-active, inquisitive and able to exercise skepticism. He suggested that the CCO report to the chief executive so as to send the message that compliance is important.

A list of 24 functions a CCO is expected to perform will be posted on the SEC web site. In addition, the agency is establishing a secure email system to communicate with CCOs.

To help managers prepare, the Managed Funds Association will publish new guidelines in a few weeks.

Contact Bob Keane with questions or comments at: [email protected].


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