If you want to start a hedge fund and are looking for immediate credibility, you would do well to line up the law firm of Schulte, Roth and Zabel as your attorney. Founded in 1969, the firm is counsel to more than 50 of the 100 largest hedge funds in America, among others, and is considered an authoritative voice on matters relating to hedge fund practices.

Of its 300-plus lawyers, more than 60 are dedicated to the firm’s investment management work for more than 400 investment companies managing an estimated $300 billion in assets. Schulte, Roth & Zabel provides their clients with soup-to-nuts advice concerning start-up, financing, litigation, seed capital arrangements, acquisitions, tax issues, and compliance. The firm has been instrumental in devising new tax and financing structures. Paul Roth, a founding partner, heads up the financial services practice and is to a large degree responsible for the firm’s premier position catering to investment managers. For this, he should thank his sister.

Mr. Roth’s brother-in-law is Howard Berkowitz, one of the earliest hedge fund managers. In 1967 Mr. Berkowitz joined with Michael Steinhardt and Jerrold Fine in setting up Steinhardt, Fine and Berkowitz. He naturally turned to his Phi Beta Kappa, Harvard educated brother-in-law for legal advice, and the practice was born.

At the time, Mr. Roth gave his relative’s start-up hedge fund little prospect for surviving. Of course, Steinhardt, Fine and Berkowitz went on to become one of the longest-lived and most successful funds. And, he did not see much of a future for the hedge fund industry overall. Oops. Fortunately, he didn’t turn away the many practitioners who came to Schulte, Roth for sage guidance in a developing industry.

Mr. Roth holds a number of impressive (and wordy) professional positions. He is chairman of the Committee on Securities Regulation for the Association of the Bar of the City of New York and vice chairman of the American Bar Association’s Subcommittee on Private Investment Entities.

Today Mr. Roth finds himself enjoying a legal honey pot. Not only is the hedge fund industry growing like mad, but the Securities and Exchange Commission has moved forward in its commissioner’s quest to acquire broader oversight. Most of the top hedge funds have stepped up their compliance procedures; all of them want to seem clean as a whistle.

At the same time a number of issues other than registration have surfaced, demanding the industry’s attention. The SEC is considering the potential conflicts of interest that arise in the use of soft dollars and the capital introduction role performed by prime brokers.

In a recent conversation, Mr. Roth talked about these concerns and registration. Generally, Mr. Roth thinks the SEC is angry. The misdeeds of corporate America, the mutual fund industry, and Wall Street have embarrassed regulators and made them look ineffective. More important, they have jarred the public’s trust in financial institutions.

More specifically, Mr. Roth sees the SEC as mostly concerned with potential conflicts of interest. In the matter of soft dollars, for example, a problem arises if commissions generated by a fund are used to the advantage of the adviser, as opposed to that of the investors. An example would be if an adviser were using soft dollars to pay for rent or for office salaries.

To resolve this perceived problem, the SEC may move to require unbundling of commissions. However, nothing much has come of similar efforts in the past. More likely, they will act to tighten permissible guidelines.

In the client introduction function, similarly, the sensitivity is to conflicts of interest. According to Mr. Roth, there are two issues, one of which is nonsensical and the other real. The first concern is that the investor must be aware of the self-interest of the prime broker doing the introduction. Since this practice mostly involves funds of funds or large sophisticated institutions, they are well aware of how the process works. Moreover, the prime brokers have to sign innumerable disclaimers in entering into a client relationship; the self-interest issue is thoroughly addressed.

The more germane question in Roth’s view is the basis on which the hedge fund has chosen a prime broker. The choice should be made based on who can provide the best and lowest cost executions, not which firm can raise the most capital.

As to registration, the issue du jour, Mr. Roth is against it. He considers most hedge fund investors sophisticated enough to evaluate the performance of a fund without the help of the SEC. He notes that there has not been any growing fraud problem in the industry, even as the industry has ballooned. Also, he argues that the SEC already has the tools it needs to combat fraud.

He also reasons that if investors in private equity and venture capital firms don’t need SEC protection, then hedge fund investors don’t either. (Private equity practitioners would argue that there is a world of difference between the two disciplines, including the lockups required of private equity investors and the fact that hedge funds deal in publicly traded securities, unlike private equity firms.)

Instead of mandating registration, Mr. Roth proposes that hedge funds be required to file certain information to answer issues raised by the SEC. This would eliminate the need for periodic examinations, which can be costly and disruptive.

Apparently the average tenure for an SEC examiner is about one and a half years, not likely long enough to master the material. This is especially the case since another main concern of the SEC is fair valuation of esoteric holdings in portfolios. It is highly unlikely an inexperienced SEC examiner is going to bring much to this party.

The hedge fund industry faces many challenges at the moment. Performance for most is not terrific, and the attentions of managers are being diverted by the very public squabbles over regulation. Without a doubt, the services of Paul Roth and his partners are much in demand; they may be the real hedge fund managers.