2019 BEST PRACTICES
Current Operational Trends for Managers
HEDGE FUND OPERATIONS
- Distinct middle office/operations team with experience settling and valuing the types of instruments held by the fund.
- Middle office portfolio management systems with a built in auto-reconciliation function.
- Daily automated in-house cash and portfolio reconciliations to all banks and custodians.
- Use of automation and third party vendors for trade confirmations, corporate actions, reconciliations, and pricing.
- Documented policies & procedures on fund operations and fund accounting.
- Maintenance of in-house parallel portfolio accounting, fund accounting, and shareholder allocations.
- Independent review of every LP statement prior to release by the fund administrator.
- Documented policies & procedures for deal due diligence, loan underwriting, ongoing fair valuation, and funding.
- Independent fair valuation oversight (at a minimum an internal CFO, but ideally a recognized independent valuation agent).
- Third party valuation checks should be set at a routine frequency e.g. semi-annually.
- Independent fund administration i.e. independent deal review and loan servicing.
- Segregation of investment portfolio from operating cash.
- Dual signatures and/or online authorizations on all fund wires.
- Investor capital flows processed by fund admin through a fund admin controlled bank account.
- Fund expenses paid by independent fund admin through a fund admin controlled bank account.
AUTOMATION AND CLOUD
- Use of cloud services and software as a service provides new efficiencies in cost and cyber security.
- Video conferencing and messaging systems provide better communication for global interaction.
- Initial employment background checks, and ongoing annual staff background checks for key persons and cash signatories.
- Discretionary and firm based compensation, vs. individual performance based compensation.
- Systematic and merit based hiring process.
- Use of committees and minuted committee meetings.
- Existence of liability and errors and ommisssions insurance and HR training.