We made it. Fifteen posts, twelve chapters, and one very thorough book about hedge fund compliance. If you stuck with this series from beginning to end, thank you. That was a long ride.
This is the last real chapter. Scharfman wraps up the book by looking ahead. What trends are shaping hedge fund compliance going forward? What should people in the industry worry about?
This is Part 2 of Chapter 11. If you missed Part 1 about compliance consulting, start there. This half covers the interview with Vinod Paul from Eze Castle Integration. The focus here is cybersecurity, cloud computing, data protection, and disaster recovery for hedge funds.
Chapter 11 is different from everything before it. Instead of explaining rules and frameworks, Scharfman sits down with real people who do compliance work every day. He interviews two compliance service providers and lets them talk about what they actually see in the field.
Chapter 10 of Scharfman’s book is one of the most practical chapters so far. Instead of explaining rules or regulations, it focuses on six real mistakes hedge funds make with their compliance programs. Let me walk you through all six.
Chapter 9 is where Scharfman stops talking theory and starts showing what compliance looks like in practice. He gives us two hypothetical scenarios (basically role-play conversations) and two real SEC enforcement cases. Each one teaches a lesson about what can go wrong when compliance is treated as an afterthought.
Up until now in this series, we talked about compliance from the hedge fund’s point of view. How they build programs, hire people, write policies. Chapter 8 flips the script. Now we look at it from the investor side. How do investors figure out if a fund’s compliance is actually good?
Previous chapters talked about the people and systems behind hedge fund compliance. Chapter 7 shifts focus to paperwork. And yes, I know paperwork sounds boring. But here’s the thing: without proper documentation, a hedge fund’s compliance program basically does not exist. At least not in the eyes of regulators.
So far in this series we talked about in-house compliance. The people inside a hedge fund who make sure rules are followed. But here’s the thing. Sometimes that’s not enough. Sometimes you need to call in outside help.
Technology runs everything these days. Hedge funds are no different. Chapter 5 of Scharfman’s book looks at how hedge funds use technology specifically for compliance. Not for trading. Not for making money. For following the rules and keeping records.
In the last chapter we talked about the Chief Compliance Officer. The person in charge. But here’s the thing. One person can’t do everything. Even the best CCO needs a team. Chapter 4 is about how that team gets built and how the whole thing works together.
Every hedge fund needs someone who keeps things legal. That person is the Chief Compliance Officer, or CCO. Chapter 3 of Jason Scharfman’s book breaks down what a CCO actually does, what qualifications they need, and how the whole regulatory reporting process works.
Chapter 2 of Scharfman’s book is all about regulation. Who makes the rules for hedge funds? Who enforces them? And what happens when the regulators actually show up at your door? Let’s break it down.
Let’s start with the basics. What does “compliance” even mean? In simple words, compliance is how an organization follows the rules. Every industry has rules. Healthcare, construction, science, finance. The government usually writes these rules, but sometimes they come from other places too.
So I just finished reading “Hedge Fund Compliance: Risks, Regulation, and Management” by Jason A. Scharfman, and I wanted to share what I learned. This book is dense. Like, really dense. But the stuff inside is important if you want to understand how hedge funds actually follow the rules (or don’t).
In Part 1 we covered the big picture of operational due diligence and why so many hedge fund failures trace back to operational problems. Now in Part 2, Travers lays out exactly what to check, what questions to ask, and then shows us a real example interview with the operations team at Fictional Capital Management (FCM).
Chapter 8 of “The Hedge Fund Book” by Richard C. Wilson is about governance. If that word already made your eyes glaze over, stick with me. This is actually one of the more important chapters, because it explains why hedge funds blow up and how simple oversight structures can prevent it.
Here’s a stat that surprised me. A 2006 study by Capco found that more than half of hedge fund failures happen because of operational problems, not bad investment picks. Think about that. Most funds don’t blow up because the portfolio manager made a bad bet. They blow up because the back office was a mess.