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.

Fair allocation is an important control against a number of potential abuses such as front running and placing the Hedge Fund manager in a position of a potential conflict of interest. Procedures to demonstrate that the principles of fair and prompt allocation are enforced should include:

1. the adoption of an allocation policy which should be consistently applied, unless unusual circumstances arise (e.g., if it would be uneconomical to allocate a very small investment to a particular account);
2. recording the intended basis of allocation of all proposed transactions prior to the transaction taking place (i.e., prior to execution);
3. prompt allocation of all transactions after execution, usually on the trade date;
4. ensuring that no allocation is made to the account of the manager or a staff member, unless it can clearly be demonstrated that this is in accordance with the intended basis of allocation and that all clients have received their full allocation and
5. documenting the reason for any reallocation from one account to another. Typically this would only be permitted where the original allocation can be shown to have been made in error.
6. The Hedge Fund manager should have a process to review trade allocations for consistency and to achieve its objective of fair allocation.