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.

No applicable guidance.