EisnerAmper’s CFO Roundtable: Navigating Compliance Hurdles from the Investor Perspective

EnTrust Capital’s Chief Compliance Officer Bruce Kahne weighs in on a handful of compliance-related issues managers need to keep in mind when speaking to investors

As compliance matters have become more arduous for alternative investment firms on the heels of heightened regulation, CFOs and/or COOs who often also act as chief compliance officers (CCOs), or funds with a dedicated CCO, have their hands full. At the most recent EisnerAmper CFO Roundtable which took place on October 7, industry veteran Bruce Kahne, CCO for EnTrust Capital, a New York-based fund of hedge funds manager with approximately $13 billion in assets under management, suggested to attendees that some of the most prominent current compliance-related issues managers need to think about following possible allocator inquiries include headline risk, disclosure, cybersecurity and personal trading policies of fund managers.

Headline Risk

-Investors are becoming more and more sensitive to any types of headline risk amongst funds, especially if there are negative news articles written on a manager. 

-Additionally, failing to hire appropriate personnel could potentially be another aspect of headline risk; therefore, investors may continue to inquire how managers handle this function at their respective firms.

Disclosure

-Managers should be prepared when investors question them on their disclosure documents and offering documents related to redemptions, gating, valuations and even cybersecurity risk.

Cybersecurity

-As the topic of possible cybersecurity threats has become more prominent in the alternative investment industry, investors continue to inquire what tools funds have in place to ensure they are prepared for possible attacks, such as vendor tests to see if they are vulnerable to a breach.

-Further, managers must do what they can on the employee front to guard against any cybersecurity threats.

Personal Trading

-Investors continue to pay more attention to the personal trading policies of managers, which can be a conflict when a firm’s investment professionals should be spending time on their fund’s portfolio, rather than their own investments.

-Further, allocators may also see red flags when firms’ employees use social media for business purposes.