Chief Compliance Officers and Private Investment Funds

If you are running a private investment fund, do you need a chief compliance officer?

If you are not registered with the SEC, it’s a gray area. If you are registered with SEC, then “yes.”

Rule 206(4)-7 requires a registered investment adviser to “[d]esignate an individual (who is a supervised person) responsible for administering the policies and procedures that you adopt under paragraph (a) of this section.”

Since the financial reform bill is going to remove the small adviser exemption from registration, hundreds (thousands?) of private fund managers will need to register with the SEC once the bill is finalized and signed by the president.

Do you need to hire a new person to serve as CCO? The rule does not require advisers to hire an additional executive to serve as compliance officer. [See Footnote 74 of SEC Release No. IA-2204] You merely have to designate someone to serve in the role.

What are the requirements for a CCO for private equity fund?

  • Must be competent and knowledgeable regarding the Advisers Act.
  • Must be empowered with full responsibility and authority to develop and enforce appropriate policies and procedures for the firm.
  • Must have sufficient seniority and authority within the organization to compel others to adhere to the compliance policies and procedures.

Having the knowledge about the act is going have many firms look toward their general counsel to act as CCO.

A dual role of general counsel and CCO may put the individual into conflict with their obligations to maintain attorney-client privilege.


Image is Yes from Administration by Ranken Jordan