Now we're going to talk a little bit about conflict of interest. One of the things - this should be very evident to everyone on this call here in the compliance world is that - and the way that I describe it to the employees at my firm - is that advisors act, and a lot of what we do, is based off the concept of conflict of interest. There are clear conflicts of interest that are just - part of and the fabric of the advisory role. For example, advisors charge fees. Technically, that is a conflict because you charge a fee. There are lots of conflicts, and there are a couple that I will point out specifically. The main part of conflicts is that we need to identify them. We need to mitigate them where possible or eliminate them where possible, and we also need to disclose them.

I thought there was a really good - on slide 14 - a really good definition of what is a conflict of interest. This was from a couple of years ago. When you have a chance, read through it. I think one of the important parts about that and one of the talking points that I mention when I talk about conflicts within the firm is that if you do not manage your conflicts well or you don't disclose them or you violate them, the reputational risk that you bring upon the firm for doing that can be impossible to recover. One can look at conflicts issue as reputational as well. There's violation of law, that's clear. Even on the margin, it's something that should be taken very careful, or paid careful attention to.

Polling question. Have you conducted an inventory of conflict issues at your firm and how are you handling them? ... We'll see how the answers come back on this.

The answer C is also going to apply to overall this is the major area they're looking into, so much of it falls under the rubric of conflicts of interest. The cases they brought recently when they bring in the private equity world and in the hedge fund world certainly deals with conflicts. When they come in at it's a strong point of what they're looking for and to see how you have tested and checked to see what ones you have and how you're handling them.

69% yes, 17% no.

Great.

One of the things that when we ran our conflicts, we created a matrix, and we tried to identify conflicts from top to bottom in everything that we do. We then - in my matrix, I included a column that states whether or not the conflict has been eliminated and if so, how. If it's not to be eliminated it, how have we mitigated it and if so, how? Also, in both of those instances, where have we disclosed it? I try to tie each conflict to a particular disclosure document most notably, in the private fund context and those disclosures and conflict disclosures.

In your conflicts analysis, how voluminous is the number of conflicts that you identify?

We really started thinking outside the box and think of ones that may not actually apply to your firm but you want to show that you thought about them. If I print the Excel spreadsheet, I think it's 15 pages. In a lot of those - again, our notes about what we did to try to mitigate them or eliminate them. It's a working document. I keep it - I look at it every year, and I try to go back to it constantly because what happens is that document in a way should really inform you in terms of updating your compliance manual, updating your form, and updating any disclosures. It's a really good school. It makes you think through the issues. Certainly, I'll say, if you find something that you're not addressing, you really need to address it because if there's an examination and the SEC asks for your matrix, and you show that there's one that you haven't addressed then that can be very problematic. That's something I think Charles would have alluded to earlier on.

On slide 16, we listed a few areas that in the - certainly in the product fund context - are really ripe for conflict issues. Again, you'll notice some of these cannot be absolutely eliminated. Some can. One of the biggest ones is valuation. The reason why valuation's a conflict is if you ... you're marking your assets in a hedge fund context market then a higher valuation could lead, and should lead, to higher fees. You could try to eliminate that by relying on third party pricing only, for example, but certain assets you can't get priced that way. You have to have a very good policy and procedure about valuing it. You may go to a valuation committee and you have a process for showing that.

Another one that's really big, I think, in what I've seen and heard the SEC focus is on expense allocation. Are you allocating expenses or causing your funds, for example, to pay for expenses that really are the expense of the manager. One of the primary things you need to go back to is look at the disclosure and your client document such as an OM and figure out what is the fund supposed to pay for. Have I fully disclosed within that OM the item that I am actually charging through to the fund? I think you really need to track those in a real time way. For example, when we think about allocating the expense of any item, whether it's a legal bill or a research expense or what not, we have a big spreadsheet that's coded and for every - for example, on every legal bill, every line item is allocated to multiple clients and/or the manger. We show that work. We can - the benefit of doing that, by the way, is that you can go back at the year end or across multiple time periods and do some interesting analysis on what you're paying for different services providers and things like that.

A couple other ones, trade allocation, if you have multiple clients, you want to make sure you're not favoring one client over another, especially when those clients have different fee structures. You don't want to allocate the quote "good trades" to the clients who are paying more. It's a big conflict.

Proprietary trading accounts, want to make sure you're not taking advantage of client paid for research for your own benefit.

Strategy creep I think is a slightly different type of conflict where you have, say you're offering them random, a type of strategy, you move past it because you return. That's definitely a conflict because, for one, it's a disclosure problem. Number two, it's not - you're not doing what you said you were going to do.

Marketing materials, again, something cannot be false or misleading, and the reason why a manager might want to do that is in order to get more money, to raise more money.

Co-investments would be similar to trade allocation and, again, seems to be a bit of an issue that the SEC is interest in.

Charles, do you have any thoughts on conflicts in general so far?

No, I'm going to cover a bit the conflicts of interest one and cover some of the areas. Let me just mention for a moment co-investments which is an area that used to be more private equity, but there was a study in 2014 that a third of hedge funds use co-investments, and another third were thinking about having co-investments. It's a different world for it. They may even want to use it because they had some of their liquid investments or as with the some investors. Or they may have some eliquid investments that they have a co-investor that can help them with it. What the SEC has really made clear on your allocation of co-investment opportunities, once again, it's a disclosure. Have you disclosed what your policy is and how you're going to chose co-investors? You don't have to follow any certain method of who you allocate to as long as it has a good reason. In the first instance though, the fund has to have the full amount of its appetite for the investment before you can turn to any co-investor.

In the private equity world, sometimes an investment may be larger than the private equity manager wants to take on, but yet acquiring the funds requires some additional capital and so they may have co-investment opportunities. Also, a disclosure question and a contractual question, there will be a number of investors who want to have an opportunity to be offered co-investment opportunities. That may be in their side letter agreement that you signed with them.