MFA’s Sound Practices for Hedge Fund Managers

The Managed Funds Association (MFA) leads the alternative investment industry in the development of standards of excellence in business conduct and operational practices that promote market integrity, market efficiencies, investor protection and the prevention of systemic risk.

The 2009 edition of Sound Practices has been updated to incorporate the recommendations from the President’s Working Group’s (PWG) Best Practices for the Hedge Fund Industry Report of the Asset Managers’ Committee (AMC Report), which was released in January, 2009. Those recommendations are in five substantive areas: Disclosure and Investor Protection; Valuation; Risk Management; Trading and Business Operations; and Compliance, Conflicts and Business Practices.

Sound Practices, which was originally published in 2000 and is now in its fifth edition, is a dynamic blueprint for use by hedge fund managers to strengthen business practices through a strong framework of internal policies and procedures. Sound Practices provides peer-to-peer recommendations for establishing standards of excellence in virtually every aspect of business. Sound Practices also includes a model due diligence questionnaire for investors to use as part of their due diligence process in connection with investing in hedge funds. The questionnaire, combined with the recommendations in Sound Practices, provides investors with powerful tools as they conduct their due diligence on hedge fund managers.

The 2009 edition of Sound Practices also includes recommendations in these areas that go beyond those contained in the AMC Report. Many of these additional recommendations were contained in the 2007 edition of Sound Practices, while other recommendations have been added or enhanced in light of regulatory and market events since the release of the 2007 edition. Sound Practices also contains comprehensive recommendations in two additional substantive areas -- anti-money laundering and business continuity and disaster recovery.

MFA’s latest edition of Sound Practices also includes, for the first time, principles of [sound/best] practices for hedge fund managers, which are the foundation of the recommendations contained in the document. These principles will also serve as a foundation for MFA as it works with other industry organizations to create unified best practices principles for the global hedge fund industry.

The objectives of Sound Practices are to:

• Strengthen business practices of the hedge fund industry through a strong framework of internal policies and practices
• Encourage individualized assessment and application of recommendations
• Enhance market discipline in the global financial marketplace
  

Some of the key enhancements and additions to Sound Practices are:

• Recommendations incorporated from the AMC Report
• Addition of sound practices principles for each substantive area of Sound Practices

MFA is widely revered as the originator of industry best practices through its seminal guidance, Sound Practices for Hedge Fund Managers, which provides a principles-based approach to strengthening business practices.

The Association is also well known for its groundbreaking Preliminary Guidance for Hedge Funds and Hedge Fund Managers on Developing Anti-Money Laundering Programs, which set the standard on AML in response to the U.S. PATRIOT ACT.

Click here for MFA’s Sound Practices for Hedge Fund Managers 2009

Click here for MFA’s Due Diligence Questionnaire