Section B - Investment Process and Portfolio Risk Management » 1. Investment Process » 6. Conformity with Investment Strategy/Hedge Fund Mandate

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Provider: MFA

Practice:	Guidance:
1. A Hedge Fund Manager should impose appropriate controls to ensure that its portfolio management and trading activities are consistent with the allocation policies and trading parameters.	1. A Hedge Fund Manager’s senior management should regularly review the trading activities and performance of each Hedge Fund’s portfolio and regularly evaluate the associated risk levels. To do so, the Hedge Fund Manager should require internal reports that provide senior management with information regarding the trading activities, performance, and risk levels of each investment strategy. Each report should identify any and all deviations from trading parameters and risk limits. A Hedge Fund Manager that manages one or more Hedge Funds and one or more managed accounts (commonly referred to as “side - by- side management”) should develop and implement internal policies and procedures to govern the allocation of investment opportunities across Hedge Funds and managed accounts. (See Section 2, Responsibilities to Investors, Recommendation 2.8). A Hedge Fund Manager’s controls should also ensure that its portfolio management and trading activities are consistent with its policies and procedures governing transactions with counterparties. (See Section 6 — Trading Relationship, Management, Monitoring, and Disclosure).
2. A Hedge Fund Manager should establish policies for monitoring the trading activities and performance of each portfolio manager to which it allocates capital.	2. A Hedge Fund Manager should subject all of its portfolio managers, including external portfolio managers, to controls and review processes based on the amount of assets managed, form of allocation, and trading strategy. A Hedge Fund Manager should monitor the trading activities and performance of all portfolio managers on a periodic basis. Frequency of evaluation will depend on the form of the allocation (e.g., monthly performance review of the management of a passive investment in a Hedge Fund versus more frequent review of the management of a significant “managed account” investment).

Practice:

Guidance:

1. A Hedge Fund Manager should impose appropriate controls to ensure that its portfolio management and trading activities are consistent with the allocation policies and trading parameters.

1. A Hedge Fund Manager’s senior management should regularly review the trading activities and performance of each Hedge Fund’s portfolio and regularly evaluate the associated risk levels. To do so, the Hedge Fund Manager should require internal reports that provide senior management with information regarding the trading activities, performance, and risk levels of each investment strategy. Each report should identify any and all deviations from trading parameters and risk limits.

A Hedge Fund Manager that manages one or more Hedge Funds and one or more managed accounts (commonly referred to as “side - by- side management”) should develop and implement internal policies and procedures to govern the allocation of investment opportunities across Hedge Funds and managed accounts. (See Section 2, Responsibilities to Investors, Recommendation 2.8). A Hedge Fund Manager’s controls should also ensure that its portfolio management and trading activities are consistent with its policies and procedures governing transactions with counterparties. (See Section 6 — Trading Relationship, Management, Monitoring, and Disclosure).

2. A Hedge Fund Manager should establish policies for monitoring the trading activities and performance of each portfolio manager to which it allocates capital.

2. A Hedge Fund Manager should subject all of its portfolio managers, including external portfolio managers, to controls and review processes based on the amount of assets managed, form of allocation, and trading strategy. A Hedge Fund Manager should monitor the trading activities and performance of all portfolio managers on a periodic basis. Frequency of evaluation will depend on the form of the allocation (e.g., monthly performance review of the management of a passive investment in a Hedge Fund versus more frequent review of the management of a significant “managed account” investment).