As the Feb. 1 effective date of the new hedge fund regulations draws near, funds are grappling with what may be the biggest single, e-mmediate problem: electronic communications. According to a recent Ernst & Young survey, two-thirds of hedge fund respondents either have or expect to have a new e-mail system by then, but that alone will not solve a couple of thorny issues. The Securities and Exchange Commission requires hedge fund advisers to hold on to all transaction records for a certain amount of time, including e-mails, but the SEC also claims it has the right to inspect any record, electronic or otherwise, by HF advisers, regardless of their relevance to trades.

Attorney Ricardo Davidovich of law firm Tannenbaum Helpern Syracuse & Hirschtritt told Dow Jones Newswires that some firms may hold on to everything just because it may be safer. Implementing a retention policy regarding the type of records that must be stored – specifically trade-related ones – and then expecting staff to follow it can be risky, especially if the SEC comes a-calling and the record has gone a-missing.