The most significant impact of SEC registration on a private fund adviser is that the adviser becomes subject to inspection by the SEC’s Office of Compliance Inspections and Examinations (OCIE).  The greatest risk arising from an examination is that the inspection staff decides to refer a finding from an inspection to the Division of Enforcement (Enforcement) for an investigation.  Despite the severe collateral consequences that can befall a fund manager simply from the initiation of an investigation, divining whether the staff is contemplating an Enforcement referral is a surprisingly elusive proposition.  With numerous newly registered hedge fund managers about to undergo their first inspection, the risk of investigations has never been higher.  In a guest article, Mark K. Schonfeld and Kenneth J. Burke, Partner and Associate, respectively, at Gibson Dunn & Crutcher LLP, discuss the increasing risks of compliance examinations becoming enforcement investigations and practical strategies for hedge fund managers for anticipating and mitigating those risks.