Every hedge fund manager and investment adviser faces potential conflicts of interest, and the SEC has warned that, unless eliminated or properly mitigated, conflicts of interest are a significant concern. See “Current and Former SEC, DOJ and NY State Attorney General Practitioners Discuss Regulatory and Enforcement Priorities” (Jan. 14, 2016). Failure to properly address conflicts of interest can result in significant SEC enforcement penalties, such as the recent $20 million penalty against Guggenheim Partners. See “SEC Settlement With Investment Adviser Highlights Perils of Undisclosed Conflicts of Interest” (Aug. 27, 2015). Consequently, a primary focus of investment managers’ compliance efforts must be identifying and mitigating conflicts of interest, as well as developing and implementing related compliance policies and procedures. Among various topics discussed during the recent Regulatory Compliance Association (RCA) Compliance, Risk and Enforcement Symposium, panelists explored common conflicts of interest, including expense allocations, allocation of investment opportunities, affiliated transactions and valuation. This article highlights the salient points made on these issues. For additional insight from RCA programs, see “RCA Panel Highlights Conflicts of Interest Affecting Fund Managers” (Jul. 2, 2015); and “All-Star Panel at RCA PracticeEdge Session Analyzes Five Key Regulatory Challenges Facing Hedge Fund Managers” (Oct. 2, 2014).
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