Chelsea Technologies has seen a recent increase in hedge fund managers commissioning third-party due diligence audits ahead of the 30 March hedge fund registration deadline with the Securities and Exchange Commission.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, US hedge fund managers with USD150 million AUM or more are required to be registered with the SEC. As part of its oversight, the SEC will conduct periodic regulatory examinations. Initial examinations are anticipated shortly following the 30 March deadline.
Beginning in early Q4 2011, Chelsea Technologies saw a dramatic increase in the number of hedge fund managers commissioning them to run mock due diligence audits as part of a final preparation for SEC registration.
Hedge fund managers are also citing the need to meet increased investor demand for transparency and documentation as a driving factor in performing tactical due diligence audits ahead of capital raising rounds. With 2012 being projected to be a strong year for net inflows into hedge funds, fund managers are looking to promote strong operational infrastructure, policies and procedures as a competitive differentiation.
“In addition to facing an initial SEC examination later this year, most hedge fund managers are well aware that investors, institutional investors in particular, are looking to allocate significant capital in the alternative space this year,” says Michael Madigan, Director of Client Services at Chelsea Technologies. “What we’ve seen in the last few months is that managers have become quite proactive in ensuring they meet new regulatory requirements and then aggressively promoting that to potential investors.”
