Considerations for Illiquid Managers Launching Liquid Strategies

September 23, 2016

The following article written by Brian Lattanzio and Ken Harman was featured in the September 2016 NSCP Currents Newsletter.

The structure and function of compliance programs for hedge fund managers can be vastly different, and in most cases more expansive, than the compliance programs for managers of more illiquid asset classes such as private equity, real estate, and venture capital (collectively, “illiquid managers”). As illiquid managers explore additional service offerings for existing investors or ways to adjust risk profile and potentially enhance returns, they may consider the launch of a liquid strategy. While the diligence process of pursuing a liquid strategy will likely include a rigorous evaluation of its economic benefits, firms must also consider the various inherent operational and compliance implications of managing a liquid strategy. For example, a liquid strategy involves the more frequent operational responsibilities of fund asset valuation and trade reconciliations as well as additional compliance monitoring obligations such as monitoring for various public filing requirements.

This article will highlight certain considerations for traditional managers of illiquid strategies that may act as fiduciaries to both a liquid and an illiquid strategy, such as additional compliance control development, employee training, operational enhancements and potential challenges.

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