Soft Dollar Standards; Directing of Brokerage by Institutional Investor in Hedge Fund to Compensate for Research Provided

CFA Level II Ethics
#1

The Soft Dollar Standards reading cites an example (“Transaction 7”) where an institutional investor (one of many) in a hedge fund requests that the Investment Manager direct a portion of the hedge fund’s brokerage to Broker ABC to compensate Broker ABC for research services provided to the institutional investor.

Apparently this is prohhibited because Standard V of the Soft Dollar Standards requires that the Investment Manager not use Brokerage from another Client account to pay for a product o rservice purchased under the Client-Directed Brokerage Arrangement.

Would it not be acceptable for the Investment Manager to direct the same portion of brokerage is is represented by the institutional investor’s percentage ownership in the hedge fund?

#2

The transaction in question doesnt say so right. I mean it doesnt say explicitly that the Inst Investor is asking for his portion to be directed towards ABC. So its a violation.

If its explicitly worded that way, then its not probably not a violation. But then there is this problem that, ABC research should not be used for other clients and vice versa. It could be a lot more complex I guess :slight_smile: