Section A - Creating and Managing a Hedge Fund Business » 1. Management and Controls » 1. System & controls

Provider: AIMA

Practice:	Guidance:
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.	1. The Hedge Fund management business may want (or be required by its local regulator) to document its internal organisation arrangements using an organisation chart to identify those employees involved in each business process as well as the relationships with external providers. On the assumption that the business has a Chief Executive and a Chief Investment Officer as part of its initial team, they should properly consider the importance of appointing an appropriately qualified individual, typically known as a Chief Operating Officer, as early as possible to deal with operations, risk, finance and compliance issues. The more complex and larger the business, the more likely that these will need to be split. The relevant person should have sufficient authority as they will be instrumental in dealing with a number of counterparties through the start-up phase, designing systems and procedures and ensuring the business is properly structured and financed.
2. It is good business practice to attempt to segregate, amongst different personnel, duties which may be regarded as incompatible with each other.	2. Examples include initiating and approving investment and cash transactions and monitoring portfolio risk. However, this is often difficult to achieve in Hedge Fund management businesses with a limited number of employees. There are some basic steps which can be taken to help reduce the risks. These include ensuring that key transactions, particularly those related to cash, are approved by two people in appropriate positions of authority and using the control systems and procedures for service providers to verify and oversee transactions. In broad terms, at the very least, there should be a clear distinction between front and back office functions and these should not be conducted by the same people.

Practice:

Guidance:

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.

1. The Hedge Fund management business may want (or be required by its local regulator) to document its internal organisation arrangements using an organisation chart to identify those employees involved in each business process as well as the relationships with external providers.

On the assumption that the business has a Chief Executive and a Chief Investment Officer as part of its initial team, they should properly consider the importance of appointing an appropriately qualified individual, typically known as a Chief Operating Officer, as early as possible to deal with operations, risk, finance and compliance issues. The more complex and larger the business, the more likely that these will need to be split. The relevant person should have sufficient authority as they will be instrumental in dealing with a number of counterparties through the start-up phase, designing systems and procedures and ensuring the business is properly structured and financed.

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

2. Examples include initiating and approving investment and cash transactions and monitoring portfolio risk. However, this is often difficult to achieve in Hedge Fund management businesses with a limited number of employees. There are some basic steps which can be taken to help reduce the risks. These include ensuring that key transactions, particularly those related to cash, are approved by two people in appropriate positions of authority and using the control systems and procedures for service providers to verify and oversee transactions. In broad terms, at the very least, there should be a clear distinction between front and back office functions and these should not be conducted by the same people.