The Ontario Securities Commission (OSC) has launched a specific and detailed 'compliance' review of hedge funds, which involves obtaining information from hedge fund managers about their operations. Likely prompted by the US$50 billion Bernard Madoff hedge fund scandal in the United States, the regulator’s request for information is broader than in previous attempts to better grasp hedge funds and seems to be a 'triage' measure that will prompt further investigation, says Ronald Kosonic, a partner in the Toronto office of Borden Ladner Gervais LLP who specializes in hedge funds.

'[OSC] staff are looking for ‘red flags’ that would justify further investigations of hedge fund operations and will follow up with selected market participants to carry out on-site compliance reviews' says Kosonic.

The specific information requested by the OSC has a due date of Feb. 20 and includes details about 'service providers' to hedge funds such as auditors, prime brokers and administrators. The regulator has also asked for information on the composition and valuation of portfolios, the percentage of unitholders that are retail investors, and 18-month history of subscriptions and redemptions.