A recent SEC administrative order serves as a stark reminder that, while the investment strategies of hedge funds and alternative mutual funds are similar, the legal regimes applicable to both are quite different.  Registered hedge fund advisers need to comply with Rule 206(4)-2 under the Investment Advisers Act of 1940, the so-called custody rule.  See “Implications for Private Fund Managers of the SEC’s Recent Custody Rule Guidance and Relief Relating to ‘Privately Offered Securities’,” Hedge Fund Law Report, Vol. 6, No. 32 (Aug. 15, 2013).  Registered advisers to alternative mutual funds also need to comply with the Advisers Act custody rule, but in addition, need to comply with the custody provisions of the Investment Company Act of 1940.  A portfolio manager might reasonably expect the custody provisions to be mirror images of one another, but they are not.  For example, the Advisers Act custody rule would allow a hedge fund to post cash collateral to a broker-dealer, but the Investment Company Act custody provisions may only permit the posting of cash collateral to a bank – which could be problematic for an alternative mutual fund that wants to enter into a swap with a prime broker.  This article provides a detailed discussion of the order, then highlights the four most important lessons for alternative mutual fund managers arising out of the order.  See also “SEC Investment Management Division Director Norm Champ Details Disclosure Challenges Facing Hedge and Alternative Mutual Fund Managers,” Hedge Fund Law Report, Vol. 7, No. 46 (Dec. 11, 2014).