1.  A Hedge Fund Manager should establish written compliance policies and procedures that comprehensively address all applicable laws, tailored to its specific business operations.

1.  A Hedge Fund Manager should have comprehensive policies and procedures in place specifically tailored to address the laws, rules, and regulations applicable to its investment management business and investment activities.

While many service providers offer model or “off-the-shelf” compliance policies and procedures, a Hedge Fund Manager and its compliance personnel should tailor policies and procedures to the business of the Hedge Fund Manager and the Hedge Funds it manages. The tailored policies and procedures should take into account the types of investments made or instruments traded, as well as the jurisdictions in which the Hedge Fund Manager conducts business and investment activities.

While not exhaustive, the checklist available in Appendix VI – “Checklist for Hedge Fund Managers to Consider in Developing a Compliance Manual”, contains possible components of compliance policies and procedures.

For additional guidance regarding the regulations governing compliance policies and procedures (which are required to be adopted by investment advisers registered with the SEC) see the SEC’s Web site (www.sec.gov/rules/final/ia-2204. htm).

2.  As part of its written compliance policies and procedures, a Hedge Fund Manager should include a code of ethics specifically designed for its business operations. The code should set standards of professional conduct for its personnel consistent with the Hedge Fund Manager’s fiduciary duties and other applicable laws. The code should also include procedures for handling material, non-public information to the extent relevant and applicable.

2.  A Hedge Fund Manager’s written code of ethics should address, where applicable, the following:

• standards of conduct for covered person
• protection of material, non-public information; 
• compliance with federal securities laws; 
• reporting and reviewing personal securities transactions; and 
• reporting violations of the code of ethics to a designated person. 

A professional code of conduct or code of ethics should set forth guidelines and expectations for the conduct of a Hedge Fund Manager’s personnel. A Hedge Fund Manager should develop a procedure to ensure that employees understand and accept the code. For example, a Hedge Fund Manager may require employees to undergo periodic verifications in the form of a written attestation of the relevant employee’s understanding and acceptance of the code (e.g., as required of SEC-registered Hedge Fund Managers), or in such other form as the Hedge Fund Manager determines is appropriate for its business. 

Similar to the compliance policies and procedures referenced in Recommendation 5.4, a Hedge Fund Manager should develop a code of ethics tailored to the business of the Hedge Fund Manager.  The code of ethics should adequately address any conflicts of interest that are present in the Hedge Fund Manager’s business. 

The SEC requires that registered investment advisers adopt a code of ethics for their personnel in compliance with SEC regulations.  A copy of these regulations is available on the SEC Web site (www.sec.gov/rules/final/ia-2256.htm). While not exhaustive, the checklist available in Appendix VII – “Checklist for Hedge Fund Managers to Consider in Developing a Code of Ethics”, contains sample components of a code of ethics.

3.  As part of its compliance program, a Hedge Fund Manager should develop document retention policies and procedures and create and retain required books and records related to business operations.

3.  A Hedge Fund Manager should design policies and procedures to ensure the retention of accurate and complete records. It should employ, where reasonable, appropriate electronic data management systems.  A Hedge Fund Manager should also establish a policy relating to the appropriate length of time records are retained, taking into consideration its organizational structure and business activities. 

For an SEC-registered Hedge Fund Manager, the SEC’s rule relating to the maintenance of books and records is detailed as to the types of records required. The SEC has interpreted this rule to include retention of relevant email. The types of records generally relate to business accounting matters such as:

• accounting ledgers, bank statements, and bills; 
• written agreements with investors; 
• performance history; and 
• recommendations distributed to a certain number of persons.

Generally, an SEC-registered Hedge Fund Manager is required to retain records for five years. 

With respect to performance and valuation data, a Hedge Fund Manager should give consideration to the retention of records to support the valuation of a Hedge Fund’s investments and the determination of a Hedge Fund’s performance. A Hedge Fund Manager should adequately verify the use of a particular track record of an individual trader or portfolio manager relating to their employment with the Hedge Fund Manager.