Sound Practices for Hedge Fund Managers

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. Originally published in 2000, the 2009 version of the guidance is MFA’s fifth edition.

Sound Practices 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.

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

The 2009 edition of Sound Practices incorporates 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.

MFA’s 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, provide investors with powerful tools as they conduct their due diligence on hedge fund managers.

MFA 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 and is a part of MFA’s Sound Practices.

Global Best Practices Principles

MFA’s 2009 edition of Sound Practices also features Principles of Best Practice for Hedge Fund Managers, a document which contains unified, global best practices principles for the hedge fund industry.

In response to the request of the G20 and the Financial Stability Board for unified best practices for hedge funds, MFA collaborated with the PWG’s Asset Managers’ Committee, the Hedge Fund Standards Board and the Alternative Investment Management Association and, working in consultation with the PWG’s Investors’ Committee, developed principles of best practice for hedge fund managers, wherever located. These principles are based on the previous works of best practices issued by MFA, the Asset Managers’ Committee, the Hedge Fund Standards Board and the Alternative Investment Management Association.

Hedge funds play an important role in financial markets globally and with this role comes responsibility. The best practices reports and these global principles represent the industry’s acceptance of this responsibility by promoting strong practices that are commensurate with the increasingly important role of hedge funds in global financial markets.

The unified, global principles are intentionally cast at a higher level to provide a unified, broad-based set of principles useful to hedge fund managers across jurisdictions. MFA believes that these robust principles will accommodate hedge fund managers who may be subject to different legal and regulatory regimes, industry customs or practices and other local and regional market differences. These principles necessarily provide less detail than MFA’s Sound Practices and the best practices reports of the other organizations with whom we collaborated

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

Click here for MFA’s Sound Practices PowerPoint presentation as seen during our webinar, March 31, 2009.

Click here for MFA’s Due Diligence Questionnaire

Click here for MFA’s Sound Practices for Hedge Fund Managers 2007