Lawyers with Dodd-Frank Act and regulatory expertise are being wooed by private equity firms and hedge funds in need of an in-house compliance team.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, requires private equity and hedge funds to register with the Securities and Exchange Commission if they have at least $150 million in assets under management.
In addition, scores of regulations have been issued under Dodd-Frank and there are more to come. Only one third of the 398 requirements under Dodd-Frank have been written into rules, according to a Davis Polk & Wardwell analysis. Another third have been written into proposed rules while the final third have yet to be proposed.
"If the pace of new regulation continues the way we've seen in the last year or two, I think more and more [financial services] firms will be adding to their legal and compliance departments," said Adam Reback, a chief compliance officer at hedge fund J. Goldman & Co. "It means more filings, it means more leg work, it means more monitoring. You just need more people to get it done" and more resources.
The SEC reported in October that about 1,500 advisers to hedge funds and other private funds had registered with the agency since Dodd-Frank made it mandatory.
As investment entities "saw these regulations, they started hiring," said Nora Jordan, head of Davis Polk's investment management group, who said she has seen full-time compliance officers with smaller hedge funds that didn't have these positions before.
"There are quite a number of other Dodd-Frank regs that will impact hedge and PE managers that haven't gone into effect yet, but none as far-reaching as the registration rule," said Marc Elovitz, a Schulte Roth & Zabel partner and chair of the firm's investment management regulatory and compliance group.
Among the rules not yet implemented under Dodd-Frank are those relating to record-keeping and certain short-sale disclosures, Elovitz said.
Registration requires designating a chief compliance officer as well as implementing written policies and procedures, maintaining books and records, filing annual updates, and implementing a code of ethics, lawyers said.
Hedge funds and private equity firms must implement and test compliance procedures. While that can be handled by outside counsel, Jordan said, these firms "also need someone internally who knows where the weak points are and can tailor them and test them on a regular basis."