The Hedge Fund Matrix was launched in October 2008. Since that date, the PWG Asset Managers’ Committee (‘AMC’) has published its Final Report, “Best Practices for the Hedge Fund Industry” (January 2009) and the MFA has released the 2009 edition of its Sound Practices for Hedge Fund Managers.

Please be aware that the contents of Matrix incorporate the AMC’s Report of June 2008 and the 2007 edition of the MFA’s Sound Practices – the Matrix has not been updated to include any changes which the more recent documents referred to above might require and, consequently, caution should be used when referring to the columns within the Matrix which relate to the PWG and the MFA.

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  • Section A - Creating and Managing a Hedge Fund Business
    • 1. Management and Controls
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1. Every Hedge Fund management business, whatever its size, should organise its internal affairs in a responsible manner, ensuring it has appropriate systems, procedures and controls designed to mitigate and manage the risks to which the business is subjected. This should be documented but the extent of documentation will vary depending on the complexity of the business operations.

        2.  It is good business practice to attempt to segregate, amongst different personnel, duties which may be regarded as incompatible with each other.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Management should implement a business risk management process to assess all the non - investment risks associated with the business, although the degree of formality of this process will vary widely dependent upon the regulatory environment and the size and complexity of the business.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Where key functions are outsourced, management must be satisfied as to the competency of the relevant service provider and should have a process in place to monitor and review work performed. 
        [See also Section E2 (2)]

        2.  The firm should ensure that it undertakes suitably robust reviews of the third parties to provide itself with the assurance that they are performing the outsourced functions in accordance with their service level agreements.
        [See also Section E2 (2)]
         

        		 View Guidance
    • 2. Finance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Firms should ensure that they have appropriate systems and procedures capable of:

        1. developing relevant budgets;
        2. monitoring their financial resources position;
        3. producing timely and accurate management accounting and financial information; and
        4. providing necessary regulatory and statutory financial reports in the format that the jurisdiction requires.

        In the case of (i), budgets should be prepared annually and updated where significant changes occur in underlying assumptions. They should include monthly income, expenditure, cash and (if relevant) regulatory capital forecasts. Procedures in respect of the processes adopted for each of (i) to (iv) above should be documented and retained.
         

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Management should have the appropriate knowledge and skills to monitor the financial resources position of the business and to complete relevant regulatory financial filings. Where relevant, a Hedge Fund manager should be capitalised so as to meet the minimum regulatory capital requirements with some contingency (most managers will have an excess of at least 10 – 20% over the amount that they are required to hold) to take account of future changes and unexpected developments.

        		 View Guidance
    • 3. Compliance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  A Hedge Fund manager should ensure it takes reasonable steps to understand the regulatory environment within which it operates and the specific rules applicable to its business. The Hedge Fund manager should develop procedures to comply with these rules. The manager should additionally ensure that all staff are fully aware of the procedures and rules applicable to their particular area of work.

        2.  Hedge Fund managers must be conscious of the regulatory restrictions that apply to promoting their services and marketing the Hedge Funds whose investments they manage.
        [See also Section D1 (1)]
         

        		 View Guidance
      • No records were found  
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Where a Hedge Fund management business is regulated, managers should seek to retain an open and co-operative dialogue with their regulator either directly or through a trade association such as AIMA.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Hedge Fund manager should appoint a senior individual to take responsibility for compliance oversight. The Hedge Fund manager should ensure that this individual has sufficient time to dedicate to the task and that recurring tasks, such as record keeping and compliance monitoring, are completed on a timely basis. The individual appointed should be vested with the necessary authority to enforce compliance with relevant rules and internal procedures.

        		 View Guidance
      • No records were found  
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The Hedge Fund manager should implement arrangements for the regular monitoring of business risks and for adherence to all compliance requirements.

        2.  The results of monitoring should be documented and communicated to management. Procedures should be in place to ensure that where weaknesses have been identified, these are promptly resolved, as well as processes to ensure that changes in regulation are assessed and properly implemented. 

        		 View Guidance
    • 4. Employees
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        In order to ensure the suitability of new employees, the manager should have in place appropriate recruitment procedures.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Management should be committed to ensuring that employees:

        1. have the requisite level of knowledge and experience for the tasks they are undertaking;
        2. are and remain competent for the work they undertake; and
        3. are appropriately supervised and that their competence is regularly reviewed.

        Senior management should be aware of the dependence which can be placed upon key individuals in a small team and seek to mitigate the risks involved if one of these key individuals leaves (or is otherwise not available to) the Hedge Fund manager.

        2.  Hedge Fund managers should remain alert to the need for continued training and development of employees, particularly in rapidly changing investment environments or in cases where employees are changing or undertaking new roles.

        		 View Guidance
  • Section B - Investment Process and Portfolio Risk Management
    • 1. Investment Process
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Hedge Fund managers should conduct themselves in a manner which a reasonable market participant would deem prudent, honest and reputable.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The investment strategy to be applied by the Hedge Fund manager must be clearly documented and understood by those executing it. The investment strategy should also be disclosed to investors.

        2.  The Hedge Fund manager should be satisfied that the service providers have the requisite level of expertise and technology to deliver the services required to support the investment strategy and investor base effectively.
        [See also Section E2 (1)]

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        The Board is responsible to the shareholders for ensuring that the Fund adheres to its investment objectives and restrictions.
        [See also Section E1 (5.c)]

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        A Hedge Fund manager should have a defined investment decision-making process.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Any explanation of the investment process to investors or potential investors should accurately represent what happens in practice and be broadly adhered to thereafter.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The process should be reviewed and updated regularly. Employees of the Hedge Fund manager should also understand the investment process and their role in it.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Hedge Fund managers should assess and evaluate their appetite for risk with respect to the given investment strategy. Furthermore, the Hedge Fund manager should ensure that it makes investment decisions within the parameters of the Hedge Fund’s mandate.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        The Directors should ask the Fund’s Investment Manager or Administrator to produce a report on the Fund’s compliance with its stated investment policies and restrictions for consideration at each Board meeting.
        [See also Section E1 (1)]

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        If Hedge Fund managers intend to invest in non-listed instruments (which can result in sudden and significant losses) they should:

        1. inform investors of their intentions, typically in a Hedge Fund’s marketing material and/or in the offering document ensuring that all necessary legal documentation is clear that the Hedge Fund may enter into such contracts and transactions;
        2. possess the necessary expertise and experience properly to understand the factors which will change the risk profile or pricing of the instruments;
        3. ensure there are rigorous controls over entering into, documenting and collateralising the instruments;
        4. fully understand the impact of any warranties and liabilities contained in the documentation, and have a process to monitor and record these where applicable;
        5. ensure they understand any legal documentation governing or defining the nature of the instruments and the terms of their clearance, settlement and close out before signing the documents. If managers do not have access to adequate in-house resources, reference should be made to expert legal advisers; and
        6. consider using independent price providers.

         

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Hedge Fund manager should have a written policy, which should include a process regularly to review trading activity, including counterparties, in order to monitor that it is achieving its best execution objectives and complying with relevant regulatory requirements.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The fair allocation of trades amongst portfolios should be an overriding principle of business both at the time of trade and at regular valuation points.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Care should be taken to ensure that inducements do not create unacceptable conflicts of interest or influence the Hedge Fund manager to put its own interests before those of its clients or to act otherwise than in the best interest of its clients.

        2.  Any other forms of inducement, given to or received by Hedge Fund managers or their employees, should be monitored to ensure they are appropriate in the circumstances and not likely to unduly influence the judgment of the recipient.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The Hedge Fund manager should be aware that potential conflicts of interest might exist or develop from many sources, including formal or informal discussions, activities in the market and other business activities. Where they do exist or develop, the Hedge Fund manager should ensure it has policies and procedures in place for identifying such potential conflicts of interest. Any such potential or actual conflicts of interest should be kept under regular review by the senior management of the Hedge Fund manager and by those people responsible for the compliance function.

        2.  The Hedge Fund manager should ensure such conflicts are either appropriately managed or eliminated and, to the extent not eliminated, disclosed to the relevant parties. The Hedge Fund manager should also ensure that adequate steps are taken to control internal communication of information about potential or actual conflicts of interest in order for such conflicts of interest to be dealt with appropriately.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Hedge Fund manager should adopt a personal account dealing policy that ensures that conflicts of interest between staff and clients are effectively managed.

        		 View Guidance
      • No records were found  
      • No records were found  
      • No records were found  
    • 2. Portfolio Risk Management
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  There should be a defined risk management process in place, which is both realistic and is regularly used by the Hedge Fund manager to enhance performance in addition to monitoring and managing risk.

        2.  A risk management process should deal with both normal and exceptional conditions.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Hedge Fund managers should identify and understand the sources of risks inherent in their investment styles or processes. As far as is possible these risks should be translated into relevant, measurable risk factors.

        2.  Hedge Fund managers should:

        1. seek to identify each major category of market risk and regularly attempt to measure and manage these risks both individually and together;
        2. be aware that there are many methodologies for measuring market risks and that these methodologies may produce widely different results; and
        3. seek to manage the risk exposures of the portfolio within pre-defined internal and/or external guidelines. Excesses should be identified and corrected as soon as possible either through hedging or position reduction.
        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Hedge Fund managers should define their attitude towards risk by documenting investment restrictions.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Hedge Fund managers should monitor risk on a regular basis.

        2.  Hedge Fund managers should adapt the frequency of their risk monitoring to the needs of the portfolio.

        3.  Hedge Fund managers should ensure the integrity of the risk monitoring function. Where practical, the manager should aim to segregate the risk monitoring function from the investment management function with different people responsible for each.

        4.  Hedge Fund managers should reconsider the overall risk management process from time to time to make sure that it remains suitable for the investment strategy and current portfolio.

        		 View Guidance
      • No records were found  
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The risk manager should have clear and robust reporting lines to senior management which will facilitate escalation of positions or trades which present risk in excess of pre-agreed parameters.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Hedge Fund managers should define the way they measure leverage, which should be monitored regularly.

        2.  The maximum amount of leverage which can be employed may be constrained by such things as contractual terms and the suppliers of finance. Managers should ensure leverage remains within any such constraints.

        3.  The maximum level of intended leverage should be disclosed to investors.
        [see also Section D2 (1)]

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The liquidity of both individual positions and the overall portfolio should be actively monitored, particularly focusing on average daily trading volume and the concentration of positions within the portfolio.

        2.  Market liquidity (i.e., capacity to trade assets) is usually an important risk factor and, therefore, the following should be measured and monitored:

        1. funding liquidity (i.e., available sources of finance to fund positions and redemptions) is a significant risk, highly correlated with other risks. The portfolio’s cash requirements should be monitored against available sources of finance. Usually, prime brokers are the major providers of financing and their financing policies should be understood and monitored both in normal conditions and periods of stress; and
        2. position, portfolio, market and funding liquidity should be managed by having proper monitoring procedures. These procedures should be fully documented to deal with normal conditions as well as periods of stress.
        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Creditworthiness or solvency of a counterparty can become a risk particularly when there are significant unexpected changes. Because this risk is usually not hedged, managers should be aware that this may become a source of risk.

        2.  The Hedge Fund manager should have defined procedures for establishing relationships with new counterparties, undertaking a high level review of the quality of the counterparty, credit reviews and for maintaining the necessary documentation. Prime brokers and swap counterparties should be considered as significant counterparties.

        		 View Guidance
      • No records were found  
      • No records were found  
  • Section C - Portfolio Administration and Operational Controls
    • 1. Trade and Reconciliation Procedures
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Hedge Fund managers should record detailed information on all trades executed on its own systems as well as ensuring they are sent to the Hedge Fund’s prime broker or settlement agent and administrator promptly.

        2.  The Hedge Fund manager should maintain records so that all trades and trade details can be accounted for.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        If the trade is to be allocated over different accounts, the method to be used should be recorded and be consistent with the Hedge Fund manager’s stated policy.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  All trades should be confirmed with the counterparty.

        2.  The Hedge Fund manager should have appropriate procedures in place to monitor trade confirmation information to ensure that all trades are promptly confirmed and matched with counterparties.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Hedge Fund manager should have clear procedures in place to address unmatched trades, and should record how unmatched trades are being resolved on a daily basis.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The Hedge Fund manager should also ensure that contracts with service providers are as clear and practical as possible, especially in relation to liabilities.

        2.  In the case of legal documentation, the Hedge Fund manager should ensure that there is sufficient expertise (e.g., external lawyers, accountants) available to be able to advise on the legal and commercial ramifications prior to entering into the documentation. Hedge Fund managers should ensure that counterparties and relevant service providers are fully informed when trades involve novation or assignment to a third party.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Wherever possible, standard settlement instructions sent out by the Hedge Fund manager should be used to reduce the risk of incorrect details on any payment.

        2.  When a trade fails (i.e., is not matched when settlement is due), there should be procedures in place to ensure that the Hedge Fund manager is promptly informed by the custodian and/or executing broker and that records are updated to reflect the situation.

        3.  The Hedge Fund manager should have in place a policy and procedures to identify and address trade and other errors.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The Hedge Fund manager should ensure that the holdings used in trading portfolios are consistent with the underlying records held by the administrator, prime broker and (where relevant) the counterparty/custodian for OTC contracts.

        2.  The Hedge Fund manager should reconcile its own recorded stock positions against the records (including corporate actions) held by the administrator and the prime broker/custodian.

        3.  There should be clear escalation procedures between the Hedge Fund manager and service provider to identify and resolve differences in a timely manner, with recommended actions depending upon both the materiality and age of the differences. Valuations should not be issued to investors until all material differences are resolved.

        		 View Guidance
    • 2. Portfolio Valuations
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for Hedge Fund Valuation

        1.  The Governing Body of the Fund should ensure adequate segregation of duties in the NAV determination process, which may be achieved by delegating the calculation, determination and production of the NAV to a suitably independent, competent and experienced Valuation Service Provider. If the Investment Manager is responsible for determining the NAV, and/or acts as the Fund’s Governing Body, robust controls over conflicts of interest should be established.

        2.  Oversight of the entire valuation process and, in particular, resolution of pricing issues associated with hard-to-price illiquid positions and exotic instruments remains the ultimate responsibility of the Fund’s Governing Body.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        The Board of Directors has ultimate responsibility for the valuation of the Fund.

        		 View Guidance
      • No records were found  
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for Hedge Fund Valuation

        In advance of the Fund’s launch a summary of practical, workable pricing valuation practices, procedures and controls should be enshrined in a Valuation Policy Document and approved by the Fund’s Governing Body, after consultation with relevant stakeholders. The Valuation Policy Document should be reviewed on a regular basis by the Governing Body.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  Documented pricing procedures should be approved by the Board in advance of the Fund’s launch and should be disclosed in the Fund’s prospectus.

        2.  A clearly stated Pricing Policy, together with clearly stated procedures, should be agreed between the Board, on behalf of the Fund, the Auditors, the Investment Manager and the Administrator and it should be signed off by the Board, the Investment Manager and the Administrator.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for Hedge Fund Valuation

        1.  The procedures enshrined in the Fund’s Valuation Policy Document should be designed to ensure that the parties controlling the Fund’s valuation process are segregated from the parties involved in the Fund’s investment process.

        2.  The industry recognises that in certain instances the Investment Manager has the best insight with respect to the valuation of particular instruments. Wherever prices are provided or sourced by the Investment Manager, the Valuation Service Provider should be furnished with sufficient supporting information by the Investment Manager.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        There should be clear policies and procedures in place for valuing the underlying positions within the Hedge Fund and for calculating the Fund’s Net Asset Value (NAV).

        		 View Guidance

        AIMA

        Guide to Sound Practices for Hedge Fund Valuation

        1.  The Valuation Policy Document should explicitly clarify the role of each party in the valuation process, should identify price sources for each instrument type and should include a practical escalation or resolution procedure for the management of exceptions.

        2.  Procedures described in the Valuation Policy Document of the Fund must be capable of practical implementation by the Valuation Service Provider.

        3.  The Valuation Service Provider should use reasonable endeavours to apply any pricing policy consistently. Deviations from the policy should be approved by the Governing Body in advance of any NAV being released.

        4.  Wherever possible the valuation of each position in the Fund’s portfolio should be checked against a primary and secondary price source. The Valuation Policy Document should outline the hierarchy of sources to be used for each security type and the tolerance levels for variances between the sources.

        5.  Any decision to use a pricing model should be approved by the Governing Body and should be properly justified by appropriate testing. If an Investment Manager’s pricing models are used they should be independently tested and verified.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        A formalised process for reporting valuation issues (for example, stale pricing, liquidity, difficult trading markets, illiquid assets, side pockets or subjectivity) to the Board and any Valuation Committee on a regular basis should be put in place.

         

        		 View Guidance
      • No records were found  
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        A Hedge Fund manager should have procedures and systems (independent of the administrator) in place to check all fee calculations and to enable the Hedge Fund manager to include realistic fee accruals into any intra-month Net Asset Value reporting to investors.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The policy and methodology for the calculation of performance, management and administration fees should be documented in the offering document.

        		 View Guidance

        AIMA

        Guide to Sound Practices for Hedge Fund Valuation

        1.  The Fund’s Offering Document should explicitly name the party to whom responsibility for the calculation, determination and production of NAV has been delegated.

        2.  There should be adequate disclosure of any material involvement by the Investment Manager in the pricing of underlying portfolio positions.

        3.  NAV reports should be addressed directly to investors by the Administrator, where an Administrator is used, and any NAVs produced by the Investment Manager should be qualified as such. 

        4.  If the Governing Body approves a decision to allow the side-pocketing of illiquid/hard-to-value assets, it should ensure that side-pocket polices are clearly communicated to all investors. The criteria for side-pocketing individual positions should be as consistent as possible. [See also Section C2 (12) below]

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        The Investment Manager and the Administrator must also ensure compliance with the valuation provisions disclosed in the Fund’s prospectus.

        		 View Guidance
      • No records were found  
      • No records were found  
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for Hedge Fund Valuation

        1.  Any decision to allow the side-pocketing of illiquid/hard-to-value positions should be taken only after careful consideration by a Fund’s Governing Body.

        2.  If the Governing Body approves a decision to allow the side-pocketing of illiquid /hard-to-value assets, it should ensure that side-pocket polices are clearly communicated to all investors. The criteria for side-pocketing individual positions should be as consistent as possible.
        [See also Section C2 (8) above]

        		 View Guidance
    • 3. Non-trading Transactions
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for Hedge Fund Valuation

        1.  The directors of the Fund itself should approve the opening of a new bank account for the Hedge Fund. The approval should be formally documented (e.g., in board minutes).

        2.  All transactions should be authorised in accordance with the bank mandate. At each month end, the prime broker will post income and expense items to the prime brokerage account. The Hedge Fund manager should have adequate systems to check the accuracy of these postings.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The Hedge Fund’s administrator and the Hedge Fund manager should reconcile details of the Hedge Fund’s bank accounts on a regular, perhaps daily, basis.

        2.  The Hedge Fund manager should obtain records of net subscriptions and redemptions provided by the administrator.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Hedge Fund manager should also familiarise itself with the extent, if any, to which it may rely upon the administrator’s anti-money laundering procedures, and ensure that, between itself, the administrator and any other service providers, there are adequate procedures in place to complete client identification checks.

        		 View Guidance
    • 4. Information Systems and Business Continuity
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  There should be high standards of security and integrity over the computer systems that are used by the Hedge Fund manager.

        2.  Where the Hedge Fund manager is to place critical reliance on the contents of a spreadsheet, the data should be adequately backed up and appropriate arrangements should be in place as to who may have access to them.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The Hedge Fund manager should develop a Business Continuity Plan to cater for a disaster.

        2.  At a high level, the Hedge Fund manager should ensure that the Business Continuity Plan is owned by a senior business manager (i.e., not just technology), that the plan has been written with input from all senior and key personnel across the business, and that the most critical business activities have been identified and appropriate actions identified to maintain operations.

        		 View Guidance

        AIMA

        Guide to Business Continuity Management for Hedge Fund Managers

        For a Business Continuity Plan to be effective, it must be owned and supported by a senior company official, who would usually be the Chief Operations Officer and who should hold director or similar status.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Business Continuity Management for Hedge Fund Managers

        A Crisis Management Team made up of senior managers who represent the whole organisation should manage the organisational issues of an event. This team must be responsible for the evaluation of the event and the response to it until full resumption is achieved.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Business Continuity Management for Hedge Fund Managers

        1.  The first stage is to identify the business critical activities across the whole organisation.

        2.  Managers should make sure that key suppliers have their full contact details.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Business Continuity Management for Hedge Fund Managers

        1.  The company must decide who can declare that contingency arrangements should start.

        2.  A clear chain of command is required, with at least two, and preferably more, people able to take control.

        3.  The key roles/responsibilities to be played in the recovery should be identified, and more than one person should be able to fill each key role (especially the IT system administrator role).

        4.  As the company switches to crisis and recovery level systems and processes, it is vital to plan for the return to business as usual.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Business Continuity Plan, including a full systems test, should be tested, preferably without warning, at least once per year.

        		 View Guidance

        AIMA

        Guide to Business Continuity Management for Hedge Fund Managers

        The Business Continuity Plan cannot be claimed to be effective until it has been tested.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Business Continuity Management for Hedge Fund Managers

        The company needs a clear plan for keeping Business Continuity Plan arrangements up to date. There needs to be clear ownership of the Business Continuity plan and regular review cycles.

        		 View Guidance
  • Section D - Raising Capital and Investor Relations
    • 1. Raising Capital
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Hedge Fund managers must be conscious of the regulatory restrictions that apply to promoting their services and marketing the Hedge Funds whose investments they manage.
        [See also Section A3 (1)]

        2.  A Hedge Fund’s offering document should provide disclosure to potential investors which is sufficient to allow them to make an informed investment decision, including material risks, potential conflicts of interest for both the Hedge Fund manager and service providers and directors, material aspects of the valuation methodology, liquidity, the investment objective, strategy and restrictions, service providers and directors. Supplemental disclosures should be made in respect of material changes in any of the above. The directors of the Hedge Fund should affirmatively take responsibility for the statements in the offering document.
        [See also Section E1 (4)]

        3.  The Hedge Fund manager should take adequate time and care to prepare suitable marketing materials.

        4.  Before being used, marketing materials should be approved by the Hedge Fund manager’s compliance function having, where necessary, taken appropriate legal or regulatory advice.

        5.  A Hedge Fund manager should prepare a marketing plan to help focus on the type and scale of investors that it will seek to attract.

        6.  When engaging third party marketers, the Hedge Fund manager should consider a number of business issues, including the suitability of the marketers properly to represent the Hedge Fund manager or product being marketed and the standing and reputation of the marketers.

        7.  Hedge Fund managers should periodically review the levels of service being provided by the third party marketers and take appropriate action where the expected service levels or objectives are not being achieved or require adjustment.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  In terms of new business activities, the Directors should make themselves aware of the overall plans that the Investment Manager, and any distributors it has appointed, have to promote the Fund.

        2.  A report should be available quarterly, summarising gross and net subscriptions, so that the size of the Fund against its theoretical capacity can be monitored.

        3.  Once a year, the Directors should ask for a new business presentation by the Investment Manager to ensure that the proposition to the investors is aligned with the description of the Fund contained in the prospectus.

        4.  Every Fund is required to state its investment policies and restrictions in its prospectus, making current and prospective investors aware of the types of investments the Fund may make and the goals it is trying to achieve. The Directors’ role is to monitor the Fund to see that it complies with its stated investment policies and restrictions.
        [See also Section E1 (1)]

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Hedge Fund manager should ensure that a senior individual is responsible for its anti-money laundering compliance and that all employees are kept up to date with developments in this area. The Hedge Fund manager should also ensure that appropriate procedures and controls are in place to ensure that the relevant rules and requirements are considered, particularly when marketing to potential investors.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  The Board should understand the nature of the AML requirements which apply in respect of the Fund and whether responsibility for implementing the necessary procedures has been delegated, as will often be the case, to the Administrator or the Investment Manager.

        2.  The Board should obtain regular feedback from the Administrator or Investment Manager, to ascertain that the formal procedures in place are being adhered to and that any suspicious findings were raised and investigated accordingly. All suspicious findings and the results of the subsequent investigation should be promptly reported to the Board.

        3.  The Board should additionally obtain and review the Administrator’s SAS 70 (or equivalent controls report, if it has one) covering all aspects of the Administrator’s operations, including its AML procedures, as well as the exit letter from regulator investigations/audits at the Administrator, if either exists.

        4.  The AML policies and procedures adopted by the Administrator or the Investment Manager should be in compliance with the AML laws and regulations which apply to the Fund in its jurisdiction of incorporation as well as in the jurisdictions of the Administrator and the Investment Manager.

        5.  The Board should ensure any changes in the applicable AML laws and regulations are promptly addressed and suitable procedures adopted.

        6.  The policy adopted should generally also ensure that, until the AML procedures are completed satisfactorily, any new subscription monies remain in the subscriptions bank account and are not transferred into the prime brokerage account.

        7.  The policy adopted should also ensure that redemptions are paid into the account from which the original investment was wired. In the event that the redeeming investor requests that redemption proceeds be paid into an account different from that from which the investment was paid, the redeeming investor would normally be asked to substantiate in writing the reason(s) for the new account.

        8.  In the event that a subscription has been accepted without receipt of the full AML documentation, the Administrator must retain the redemption proceeds until the outstanding documentation has been provided.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Hedge Fund managers should consider carefully any conflicts of interest they create by agreeing to special terms and any legal and regulatory requirements to disclose the existence and content of special agreements and side letters.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  If the Fund enters into side letters, the Directors should ensure that the terms in any letter are explained to them by the Investment Manager and, if needed, by the Fund’s lawyers, prior to acceptance. The Board should be made aware of all such arrangements. It needs to be understood by the manager, the adviser and the Board as to which of them should be (or legally is able to be) the signatory of such letters.

        2.  Directors should also ensure that the use of side letters is monitored on a regular basis for actions that are needed.

        3.  The Directors must also consider their fiduciary duties as Directors, which include a duty to act bona fide in what they consider to be the best interests of the Fund. This duty is owed to the Fund itself and the effect of this is that the Directors are not entitled to consider solely the interests of a specific shareholder or the Investment Manager in determining whether or not to enter into a side letter.

        4.  The Fund’s Directors and/or the Investment Manager should ensure that existing investors have received adequate disclosure that other investors in the same class of shares may be permitted to invest on different and/or more favourable terms and conditions in order for the Directors to fulfil their Directors’ duties and the Investment Manager to fulfil its common law fiduciary duties.

        5.  The Investment Manager will be required to disclose the existence of a side letter which contains “material terms”, and the nature of such terms, where the Investment Manager is party to the side letter or is aware that the Fund, of which the Investment Manager or an affiliated entity is the Investment Manager, is a party to it.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Hedge Fund managers should not themselves purport to bind the Hedge Fund where they have no legal authority to do so.

        		 View Guidance
    • 2. On-going Investor Communications
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Hedge Fund managers should provide adequate disclosure of information to investors on a consistent and timely basis.

        2.  Disclosure to investors should be made as soon as reasonably practicable, bearing in mind the need to protect all investors’ interests and any applicable legal or regulatory constraints. The Hedge Fund manager should be aware of these requirements and may wish to monitor compliance with them, though it has no legal obligation to do so.

        3.  The maximum level of intended leverage should be disclosed to investors. [see also Section B2 (7)]

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  A summary of shareholder correspondence should be provided quarterly by both the Investment Manager and the Administrator/Transfer Agent, highlighting key issues being raised so that the Board is aware of common themes such as concerns about performance or concerns about efficient administration.

        2.  Directors are responsible for ensuring that shareholders receive, as a bare minimum, the information that is promised to them in the Fund’s prospectus. 

        3.  The Directors should seek positive assurance from the Administrator that mailings to shareholders have occurred within statutory deadlines.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Hedge Fund manager, as far as practical, should aim to disclose information about material items and changes to all investors who will be affected by such items and changes.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The Hedge Fund manager should seek not to differentiate communications to investors, either in terms of the nature, content, manner or timing of disclosures, except as justified by the different relevance of the communication to the investors.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        A Hedge Fund manager should devote adequate resources to responding to investor queries (made either directly or through the administrator).

        		 View Guidance
  • Section E - Hedge Fund Structure and Organisation
    • 1. Structure of the Hedge Fund
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The structure of a proposed Hedge Fund should be considered in consultation with professional advisers and adapted to the distribution objectives, i.e., targeted investors and their geographical location.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        A Hedge Fund should obtain professional advice to determine whether and, if so when, it should seek to list some, or all, of its shares on a recognised stock exchange.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        If the Fund’s shares are admitted to listing on a stock exchange, both the Fund itself and the Fund’s Directors will be responsible for ensuring that the Fund complies with the continuing obligations imposed by the rules of that stock exchange.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        The directors of a Hedge Fund should approve a final version of the prospectus, offering memorandum or other offering document and constitutional documents such as Memorandum and Articles of Association or Limited Partnership Agreement and all material contracts to be entered into by the Hedge Fund, in a formal meeting prior to the commencement of the offer of interests.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  The Directors both collectively and individually take overall responsibility for all matters relating to the Fund. A key part of this duty is the approval of the Fund’s prospectus, the subscription documents, the Fund’s constitutional documents and its material contracts. This approval will usually be given at the inaugural Board meeting of the Fund.

        2.  The Directors should carry out a periodic review of the Fund’s prospectus and subscription documents (e.g., annually) to ensure that they remain up to date.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        A Hedge Fund’s offering document should provide disclosure to potential investors which is sufficient to allow them to make an informed investment decision, including material risks, potential conflicts of interest for both the Hedge Fund manager and service providers and directors, material aspects of the valuation methodology, liquidity, the investment objective, strategy and restrictions, service providers and directors. Supplemental disclosures should be made in respect of material changes in any of the above. The directors of the Hedge Fund should affirmatively take responsibility for the statements in the offering document.
        [See also Section D1 (1)]

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Directors should consist of natural persons rather than corporate entities. The directors should have relevant standing and experience to allow them to discharge their fiduciary and other duties. The directors should be prepared to act in the interest of the investors and to disclose any potential conflicts of interest that may prevent this.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        The Directors of a Fund must have the necessary collective expertise to understand the Fund’s trading and the nature of the underlying investments, including their risk profile and liquidity. They need to have the ability and experience to evaluate the Fund’s performance and the performance of key service providers.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        Best practice for any Fund would be to have a majority of independent offshore Directors and to avoid appointing Directors who represent the advisers or service providers to the Fund because of the potential for conflicts of interest.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        Directors should meet at appropriate intervals in minuted board meetings in a location which does not itself give rise to tax or regulatory issues for the Hedge Fund.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  Any Director should have sufficient and relevant knowledge and experience to carry out his duties as Director. He should also be able to devote sufficient time to carry out those duties and that should be reflected in his remuneration.

        2.  It is recommended that Directors should:

        • set their own compensation, to avoid potential conflicts in having it set by the Investment Manager they oversee; and
        • have the power, in appropriate circumstances, to hire their own lawyer to advise them (paid for out of the Fund’s assets).

        3.  If the Investment Manager is located in the UK, the Chairman, if one is appointed, should not be a UK resident. Otherwise, it is usually for the Board to decide who is Chairman.

        4.  There is no obligation on a Board to create any sub-committees. However, there may be circumstances when matters may be better or more quickly dealt with by the creation of smaller, specialist decision-making sub-groups.

        Any sub-committees should, however, be formally created with written terms of reference ratified by the Board. All proceedings and decisions of sub-committees should be formally reported to the Board and fully ratified by resolution.

        5.  In practice, the Board will rely on the Administrator to report on the performance of each share class, in terms of figures and it will expect copies of all investment reports sent to investors by the Investment Manager, who should report to the Board for each of its quarterly meetings as to total performance, market conditions and any problems encountered; such reports will explain how the performance was achieved and what risk profile was adopted to generate returns. The Board will also want to understand how the performance compares both with the Fund’s investment objective and with a representative sample of peer managers.

        6.  Every Fund is required to state its investment policies and restrictions in its prospectus, making current and prospective investors aware of the types of investments the Fund may make and the goals it is trying to achieve. The Directors’ role is to monitor the Fund to see that it complies with its stated investment policies and restrictions.
        [See also Section D1 (1)]

        7.  The Directors should ask the Fund’s Investment Manager or Administrator to produce a report on the Fund’s compliance with its stated investment policies and restrictions for consideration at each Board meeting.
        [See also Section B1 (6)]

        8.  The Board is responsible to the shareholders for ensuring that the Fund adheres to its investment objectives and restrictions.
        [See also Section B1 (2)]

        9.  It remains the Board’s duty to satisfy itself that all contractual service relationships are properly working and the service providers should receive regular reports of the Board’s meetings (quarterly, at least), which review the service and detail any errors or problems arising.

        10.  The Directors should be aware that:

        • auditors may be required to consolidate the accounts of the holder of the founder shares with those of the Fund if they provide “control” of the Fund for accounting purposes; and
        • exclusive voting rights must be disclosed in the prospectus.

        11.  The Board’s information requirements should include copies of all information that is provided to investors (usually monthly or quarterly newsletters), together with key documents filed on behalf of the Fund with regulatory agencies and exchanges. The future prospects for the Fund are also a responsibility of the Board.

        12.  In terms of frequency of information, subscriptions and redemptions should be reported at regular quarterly Board meetings. Subscriptions and redemptions information should also be reported at any special Board meeting which occurs at a critical time for the Fund where redemption requests have built up and would have a considerable impact on a particular dealing day.

        13.  It is normal practice for Funds to reserve the right for the Board of Directors to exercise a discretionary waiver, on request by an investor, over certain terms and conditions relating to subscription or redemption. All such areas of discretion should be clearly set out in the Fund’s prospectus.

        14.  When exercising a discretionary waiver, the Directors will rely on advice from the Investment Manager that, in doing so, the interests of existing investors are not being compromised. They may also wish to ensure that a waiver on any particular dealing date is applied equitably across all subscribing or redeeming investors who are affected.

        15.  Because most waivers are sought at short notice, the Directors may wish to delegate the authority to agree the waiver to the Investment Manager within certain pre-agreed parameters or to a single Director or a committee.

        16.  The Board may wish to receive independent guidance from time to time on a specialist topic from a party other than one of the contracted service providers.

        17.  The Directors must be aware of whether, and in what circumstances, they are permitted to appoint an expert or an adviser and whether the costs of doing so are chargeable to the Fund; the prospectus will provide guidance on what is permissible.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  Board meetings should be held sufficiently frequently so that the Board is effectively able to carry out its role and so that relevant guidance on the broader tax issues is complied with.

        2.  Where an offshore Fund’s Board chooses not to meet in the jurisdiction of incorporation of the Fund, it is strongly recommended that the Board avoid holding meetings regularly in any single jurisdiction and it should, as a general rule, hold Board meetings in many different jurisdictions so as to reduce the risk of the Fund becoming taxable in any one of those jurisdictions. In no circumstances should a Fund’s Board meet in the UK or Ireland because of the risk that the tax authority in either jurisdiction might deem the Fund to be taxable within it. The Board should not meet at all in those jurisdictions where there are UK or Irish resident Directors.

        3.  Both for general corporate governance reasons and having regard to relevant guidance on the broader tax residence issues, the documents and records (including minute books) for the Fund should be kept outside the jurisdiction in which the Investment Manager is resident.

        4.  Fund Boards should decide how executive authority is to be exercised in between Board meetings because it is unrealistic to expect all governance decisions to be made only at the physical quarterly Board meetings.

        5.  Whereas Directors can delegate decision-making to other bodies, they cannot avoid responsibility for the decisions or actions thereby arising. The Directors should define in advance those more routine items of business that can be delegated to a sub-committee or a service provider. Any decisions made by a delegated body should be reported to the Board in writing at the next regular meeting so that they can be ratified.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  The Investment Manager will, for legal purposes, often be treated under the laws of its jurisdiction as a fiduciary of the Fund (e.g., this is the case for UK based Investment Managers).

        2.  The scope of any fiduciary duties owed by the Investment Manager to the Fund will be based on the scope of the Investment Manager’s role.

        3.  In addition to fiduciary duties, an Investment Manager may also have other obligations to the Fund for which claims may be made in case of breach.

        4.  The Board’s ongoing review of the Investment Manager’s performance will necessarily include an evaluation of whether or not these duties have been fulfilled.

        5.  Matters in which the Investment Manager has discretion should be determined by the Investment Management Agreement (IMA), which is put in place between the Fund and the Investment Manager.

        6.  Assessing the performance of the Investment Manager is an ongoing responsibility of the Board, to be carried out at every Board meeting.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  Fund Directors should also consider employing a specialist insurance lawyer to review the D&O products on their behalf.

        2.  Directors need to consider what are their own, and the Fund’s, key exposures and whether the D&O policy correctly addresses these.

        		 View Guidance
    • 2. Independent Service Providers
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  A Hedge Fund should appoint relevant reputable and experienced service providers.

        2. The Hedge Fund manager should be satisfied that the service providers have the requisite level of expertise and technology to deliver the services required to support the investment strategy and investor base effectively.
        [See also Section B1 (2)]

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Appropriate due diligence (which may include face-to-face meetings with, and office visits to, the service provider) including the taking up of references should be carried out, generally by the Hedge Fund manager or its professional advisers on the Hedge Fund’s behalf, prior to starting the business relationship.

        2.  Where key functions are outsourced, management must be satisfied as to the competency of the relevant service provider and should have a process in place to monitor and review work performed.
        [See also Section A1 (3)]

        3. The firm should ensure that it undertakes suitably robust reviews of the third parties to provide itself with the assurance that they are performing the outsourced functions in accordance with their service level agreements.
        [See also Section A1 (3)]

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  Service providers’ roles, responsibilities and liabilities should be clearly documented and their performance should be periodically reviewed and documented by the Hedge Fund manager on behalf of the directors of the Hedge Fund.

        2.  The directors of the Hedge Fund, or the Hedge Fund manager on their behalf, should have regular contact with the service providers to establish good relationships, monitor and review information flows, deal with issues as they arise and continue to look for ways that the service providers can add value.

        3.  The Hedge Fund manager must ensure that the professional advisers appointed have the appropriate experience, knowledge and expertise to undertake their assigned tasks to the standard required by the directors of the Fund.

        4.  In all cases, the directors of the Hedge Fund should undertake sufficient due diligence to ensure that suppliers have the required level of expertise and experience to carry out the roles to the required level.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1. Once service providers have been retained, the directors should take reasonable steps to ensure that they formally monitor the performance of each service provider by the use of key performance indicators.

        2. There should be clear written escalation procedures between the Hedge Fund manager and the directors of the Hedge Fund to identify and resolve differences in a timely manner, with recommended actions where appropriate, depending on the materiality of the difference.

        3. The directors of the Hedge Fund should expect to review a written investment report from the Hedge Fund manager at least quarterly and should consider whether it wishes to have a mechanism whereby the Hedge Fund manager’s appointment is periodically reviewed and confirmed.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  The Directors should put in place a structure for the regular review of service providers such as the Fund’s Administrator, prime broker and/or custodian and auditors to ensure their continued competitiveness and effectiveness.

        2.  In particular, the Directors should satisfy themselves that the Fund’s auditor is not conflicted by any work for the Investment Manager and that any potential conflict has been satisfactorily resolved.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The directors of the Hedge Fund should select an administrator that has the experience and resources to provide satisfactory services to the Hedge Fund. Specifically, the administrator should have experience in accounting for the instruments and products traded by Hedge Funds with similar investment strategies.

        2.  The directors of the Hedge Fund should satisfy themselves that the administrator is capable of pricing the assets of the Fund independently and in accordance with a written asset pricing policy, the terms of which have previously been agreed between the directors and the administrator.

        3.  The directors of the Hedge Fund should expect to review a written administration report from the administrator at least quarterly (or at every board meeting) and should consider whether it wishes to have a mechanism whereby the administrator’s appointment is periodically reviewed and confirmed.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The directors of the Hedge Fund should ensure that they and the Hedge Fund manager fully understand and disclose to investors the prime brokerage arrangements and the protections/risks inherent in them.

        2.  The directors of the Hedge Fund should expect to review periodically the charges paid to the prime broker and should ask the Hedge Fund manager to comment on the quality of the service being provided. They may also wish to consider whether to implement a procedure whereby the prime broker’s appointment is periodically reviewed and confirmed.

        3.  The relationship between the Fund and the prime broker should be set out in a Prime Brokerage Agreement signed by both parties.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The directors of the Hedge Fund should retain an appropriately qualified external auditor that has experience of Hedge Funds generally and is familiar with the specific types of trading and instruments contemplated by the Hedge Fund manager. The directors of the Hedge Fund should satisfy themselves that the auditor is sufficiently independent.

        2.  The relationship between the Hedge Fund and the auditor should be set out in an audit engagement letter.

        3.  The directors of the Hedge Fund should monitor the relationship with the auditor and oversee the annual audit process.

        		 View Guidance

        AIMA

        Offshore Alternative Fund Directors' Guide

        1.  It is a standard requirement for a Fund to produce annual and sometimes semi-annual accounts (or financial statements). Annual accounts are then audited by independent auditors. The principle of Directors’ responsibility is not affected by the fact that, more often than not for a Fund, the Administrator rather than the audit firm itself will actually produce the accounts.

        2.  It is the Directors’ responsibility to select suitable accounting policies and apply them on a consistent basis, making judgments and estimates that are prudent and reasonable. They are also responsible for ensuring that the financial statements give a true and fair view of the Fund’s state of affairs at the end of the year and of the profit or loss for the year in question.

        3.  Auditors are appointed by a Fund (the appointment being approved by its Board of Directors) and are typically re-appointed annually.

        4.  The Directors an offshore alternative Fund should be aware that a financial cap on the liability of the auditor for any losses arising out of a failure by the auditor to carry out its duties properly is currently a feature of the audit services marketplace for offshore alternative funds and that, if such a cap is imposed, it should be disclosed in the Fund’s prospectus.

        5.  After conducting their audit and before signing the audit opinion, auditors seek a Letter of Representation from the Fund’s Directors as to a variety of matters of a factual and opinion nature relating to the records, systems and situation of the Fund which they have audited.

        6.  Particularly as Directors are generally ‘non-executive’ in their role, they will wish to review the accounts and the Letter of Representation carefully as personal liability may attach should the accounts or the representations prove inaccurate.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        A Hedge Fund should appoint legal counsel with appropriate expertise in appropriate jurisdictions, including where the Hedge Fund is domiciled and where the Hedge Fund manager is located and operates.

        		 View Guidance
      • Provider Practice Guidance

        AIMA

        Guide to Sound Practices for European Hedge Fund Managers

        1.  The Hedge Fund manager should always know the executing broker and the prime broker handling each specific trade.

        2.  The approval for opening and maintaining broker accounts should be formally documented.

        		 View Guidance