In response to the President’s Working Group on Financial Markets’ (PWG) call for the hedge fund industry to establish standards of excellence for improved market discipline and enhanced vigilance through collaborative efforts among counterparties, MFA and its members have significantly updated its influential publication, Sound Practices for Hedge Fund Managers.
MFA’s latest edition of Sound Practices, published in November 2007, includes substantive updates on valuation, risk management and responsibilities to investors. It also introduces a model due diligence questionnaire designed for all types of investors, including high net worth individuals, pension fund managers and nonprofit organizations.
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
Sound Practices, which was originally published in 2000 and is now in its fourth edition, provides peer-to-peer recommendations for establishing standards of excellence in virtually every aspect of business. The recommendations included in Sound Practices are divided among the seven topics listed below:
- Management, Trading, and Information Technology Controls
- Responsibilities to Investors
- Determination of Net Asset Value
- Risk Management
- Regulatory Controls
- Trading Relationship Management, Monitoring, and Disclosure
- Business Continuity, Disaster Recovery, and Crisis Management
MFA has revised Sound Practices in cooperation with international organizations that share the PWG and MFA’s goal of providing market participants with a framework for establishing uniform principles and guidance for the global hedge fund industry.
Click here for a copy of Sound Practices (please note this is a large pdf file that requires Adobe Acrobat Reader and might take time to download).Model Due Diligence Questionnaire for Hedge Fund Investors
As a complement to offering its Model Due Diligence Questionnaire for Hedge Fund Investors (DDQ) in paper and traditional electronic form, MFA has created a new “fillable” DDQ form. The new fillable DDQ form allows users to write information directly onto an Adobe® Acrobat® PDF® file, which, once completed, can be printed or emailed. MFA’s members and hedge fund investors who use the new format during the due diligence process will find it to be more convenient and easier to use.
The DDQ was added to the 2007 edition of MFA’s Sound Practices for Hedge Fund Managers and was designed to identify the kinds of questions that a potential investor may wish to consider before investing in a hedge fund. In particular, the DDQ identifies questions that may help enhance the written disclosure in a hedge fund’s offering documents.
To access a copy of the fillable DDQ form, please click here.