Okay, do you want to move to expense allocation?

Yeah, let's go on to expense allocation which is slide 20 which is certainly a big conflict issue and one that the SEC has very much focused on and brought a number of cases about. Here, too, when you look at the cases, and as John mentioned on conflicts in general, it can be, really, a disclosure issue. What have you said in the offering memorandum, in your pitch books, on your limited partner's agreement as to what expenses the fund will pay for, what expenses the advisor, the manager, will pay for. That should be spelled out.

I'm going to turn, then, to a polling question which is on 21 and then talk a little bit more. So the question is, "Do you have a written policy regarding the allocation of expenses among investment advisor and funds or clients?"

One of the things in this area is the allocation expenses and the expenses that would - the manager would pay for or the fund would pay for has really changed in the last couple of years based upon the SEC's focus area on this and the fact that the SEC has brought some cases and also given a number of speeches. Firms should have gone back and done some sort of revision to update and make sure if they're allocating expense, can they track it back to a document because that's what the SEC's going to do.

Do we have the polling? 72%, yes and no and not sure. For those who are no or not sure, my suggestion then is you find out or that you look at it. Even those who said yes ought to consider making sure that their expense policy, and their disclosure to the clients, is complete. One of the things I try to get the finance people in the fund to do is to take a look at what the disclosure is and ask them to tie back anything their allocated to a fund, where does it say that you can do that.

One of the things, since there has been so much focus on this area, that people have updated and revised and enhanced, so where we may have had a line or two, what the fund would pay for, what the manager would pay for, now it's many, many, many lines. New offering documents may have this full disclosure, but what do we do about the existing disclosure? That can be problematic.

At the CCO conference last week, one of the things that I found - which was the right answer and was pertinent, Igor Rozenblit, who is the co-head of the private funds examination team, talked about this. If you're disclosure looked at three things. One, if you're allocating your expenses according to your disclosure, that's fine. If you're allocating your expenses, or there are expenses that don't fit within your existing disclosure, then you really need to update your disclosure, put it in your AVV, maybe send it out to your clients, and he said - which is not realistic - and he said you could go out and get the consent if it's a limited partnership or your limited partners. Firms are not going to do that, and he recognized that. He said, the third thing you could do is use your limited partner advisory committee. Present it to them and get their blessing on it which is probably a reasonable thing that you could do and that you would more than likely or not get their approval, but you can't rewrite history and start charging things for prior disclosure.

It's a different issue for hedge funds than it is for private equity. Private equity, your money is committed, you can't get it out until the fund is terminated, and private equity, there are different times that people can get their money out. It is a different disclosure area, but people should look at it, measure - the other thing that I get clients to do is to quarterly, or periodically, but I have clients do it quarterly, look at the allocation of expenses between the advisor and the funds. Put it in some sort of document, an Excel spreadsheet that then gets reviewed and signed off by the CFO and the CCO to show the fact that somebody has looked at the issues and said, "Yes, that's an item that should be paid for by the fund. Here's the rationale that we've done it whether it's assets under management or some other rationale. Maybe it's a transaction that one fund has been involved in and another not, so those expenses go to one fund and not another fund." The accounting firms and the law firms are pretty good at spelling out their bills as to where it applies, but for other expenses, foreign consultants, or other issues that you use, you want to have a consideration of it and be able to show it.

I had a client this last fall that the SEC, at least in New York, was dong a sweep looking at what the firm had done for expenses, and they went back to the journals, back to the bills to see what they were, back to the allocations to see not only did the firm have an expense policy, but what they were doing.

One of the points, Charles, I know you've said to me in the past was that - and when it comes to expense allocation, if something is allocated incorrectly then there is no materiality threshold.

Right.

It does not matter the size of the expense, it just matters whether or not it was allocated correctly. Try to keep that in mind when we talk about expenses internally.