In a recent speech focused on hedge funds the Director of the SEC’s Division of Investment Management, Norm Champ, addressed alternative mutual funds. He explained that his focus on the area was due to the increasing interest in alternative mutual funds, the prevalence of hedge fund advisers acting as sub-advisers to alternative mutual funds or forming their own registered investment companies, and “heightened risk” in the operation of an alternative mutual fund. Champ noted the differences between managing a hedge fund and mutual fund, and cautioned hedge fund advisers to “consider carefully” the decision to advise or sub-advise a registered fund. Champ contrasted the “principles-based” regulation of the Advisers Act provisions with substantive restrictions of the Investment Company Act, highlighting the additional restrictions imposed by the latter. As an example of the differences, Champ noted the role of the board in a fund’s compliance program under the Investment Company Act, arguing that private fund advisers may need to reformulate compliance programs to take a registered fund as a client.
Champ’s speech can be found here.