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Bridging the Gap with Sound Practice Guides and DDQs Click here for the accessibility optimised version
Bridging the Gap with SoundPractice Guides and DDQs
Click here for the accessibility optimised version
Learn about our DDQs byexploring these pages:
1. Separating the wheat from the chaff2. Focusing on fund directors3. Assessing vendor cybersecurity
More information can be accessed relatedto each of these pages by clicking thearrow next to the title on any given page.
Learn more about existingand forthcoming guides,guidance and Guides toSound Practices by exploringthese pages:Regarding service providers and fund directors
1. Selecting a prime broker2. Selecting clearing brokers3. Selecting fund administrators*4. Enhancing fund governance
Regarding potential product types1. Developing liquid alternative funds2. Establishing managed accounts*
Regarding investors and the media1. Building relationships with investors2. Dealing with the media
Regarding operational risks1. Managing operational risk2. Assessing cyber preparedness3. Valuing client assets4. Negotiating side letters5. Preventing market abuse*6. Paying for external research7. Managing liquidity risks*
Learn more about what'scoming in 2017:
1. Rising to new heights
Each of the pages listed above, other than theones marked with an asterisk, has a relatedimmersion page where you can read more andprovide relevant feedback. The ones with anasterisk are all forthcoming.
What's covered?This document describes thevarious Sound Practice Guides,guidance and other guidesavailable to members anddiscusses the various illustrativedue diligence questionnaires wemake available to members.
Submit feedback by answeringthe poll questions you will seethroughout and clicking "Seeresults". This will also show youhow others have voted withrespect to that question.
What types of DDQs doesAIMA offer?Our suite of illustrative DDQs focuses on:
• Investment managers• Prime Brokers• Clearing Members• Fund Administrators• Fund Directors• Vendor Cyber Security
What prompted AIMA to getinto this area?AIMA created the first version of its IllustrativeQuestionnaire for the Due Diligence of HedgeFund Managers in 1997 in response torequests from investors for a standard duediligence questionnaire. The first version wasmeant to suit any type of strategy. By 1998,investor demand for tailored DDQs formanaged futures funds and funds of hedgefunds meant that two additionalquestionnaires were created. Since then, theAIMA DDQs for investors have gone on to
become the industry-standard DDQ templates.
What types of DDQs arecurrently available?The AIMA DDQ library today is designed toassist investors in performing their duediligence on investment managers,administrators, prime brokers, clearingmembers and fund directors.
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Why is it useful for there to bea standardised set ofquestions?Standardised questions help investors compare
History of the AIMADDQsWe offer a selection of duediligence questionnaires to assistinvestors in assessing the fundinvestments they might make, aswell as the fund's serviceproviders and fund directors.
These questionnaires will be ofinterest to:
-- investors-- product development staff-- investor relations staff-- legal and compliance staff-- risk management staff
like-for-like when they receive responses frommultiple managers. Managers like standardisedquestions because it reduces the amount ofwork they have to do and helps them reassureinvestors that they are all receiving the sameinformation. Even in the absence of an investorrequest for information, a standard set ofquestions can be helpful for new managerswho are seeking to assess their own practicesagainst industry standards.
The AIMA modular investment manager DDQ isused by investors from all around the worldand by many of AIMA’s manager members. Forinvestors, the DDQ is an early step in the duediligence process but by no means is it the laststep. Investors use the information they getfrom the responses to these questions todevelop areas of focus for further questionsand discussion with managers and to crosscheck information from other sources.
How does AIMA decide whenand how to amend the DDQs?AIMA’s Sound Practice Committee, which is
made up of representatives from a varety offirms from countries around the world, ischarged with the oversight of the developmentand evolution of the DDQs. When theCommittee believes that user input, regulatorychange, the passage of time and other factorswarrant a fresh look at a DDQ, a working groupof between 15 and 40 member volunteers isselected to prepare a new draft. Thesevolunteers are selected from among themanager members, fund of fund managermembers, service provider members andinvestors. Once a new draft has beencompleted by the working group, it is madeavailable for the review and comments of theCommittee, as well as other members not onthe Committee or the working group (includinginvestors) who have expressed an interest inproviding feedback on the pre-publicationdraft. Following that review process, a finalversion is prepared and published.
Can non-members use theAIMA DDQs?AIMA DDQs are reserved for the use of AIMAmembers.
Should AIMA DDQs be availablefor use by non-members?
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Why is it useful for there to bea standardised set ofquestions?Standardised questions help investors comparelike-for-like when they receive responses frommultiple fund directors. Directors likestandardised questions because it makes themmore efficient when replying to requests forinformation and helps them reassure investorsthat they are all receiving the same information.The fact that investors and allocators (includingmany who are not AIMA members) are alsousing the same question set should furtherincrease the efficiency for directors.
How do these DDQs fit into aninvestor’s overall duediligence process?The DDQs are an early step in an investor’s duediligence process but not the last step. TheDDQs are not an exhaustive list of the mattersthat investors or investment managers could orshould consider when performing due diligenceon directors or fund boards. Each user will need
to determine whether any questions should beadded or amended. Investors will use theinformation they get from the responses tothese questions to develop areas of focus forfurther questions and discussion withmanagers and directors, as well as to crosscheck information from other sources.
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Platform access now availableThe full suite of AIMA DDQs is now availablefor use through a number of electronicplatforms, including AlphaPipe, CENTRL andDiligence Vault.
Due Diligence onFund Directors andFund GoverningBodiesAIMA, in conjunction with anindependent group of allocatorsand investors, has developed afund director DDQ to assistinvestors and managers inassessing fund directors andfund governing bodies.
These questionniares will be ofinterest to:
-- investors-- product development staff-- legal and compliance staff
The DDQ is designed to streamline the processof conducting due diligence on vendorsservicing the alternative asset managementindustry. The DDQ represents the superset ofcritical questions complied by a committee ofAITEC and AIMA members who are experiencedin technology and operations.
If you are a manager, do you usethe AITEC-AIMA DDQ for VendorCyber Security to assess yourvendors?
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The AITEC-AIMA DDQ allows the industry toapproach vendors as a single voice whichprovides efficiencies in communication andultimately increases the market'sunderstanding of technology infrastructure.
If you are a vendor, have youcompleted a copy of the AITEC-AIMA DDQ for Vendor CyberSecurity?
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The AIMA-AITEC DDQ for Vendor Cyber Securityis also avilable for use through the Markit KY3P,AlphaPipe, CENTRL and Diligence Vault.
AITEC-AIMA DDQfor VendorCybersecurityAIMA has partnered with AITEC inan effort to promote awarenessand adoption of its vendortechnology due diligencequestionnaire in assetmanagement.
This DDQ will be of interest tocyber technology and operationsprofessionals at investmentmanagers and vendors, as well asto investors.
The Guide to Sound Practices for Selecting aPrime Broker was published in December 2014and incorporates changes to the regulatoryframework that affect the relationship betweenmanagers and prime brokers, includingreporting requirements and other newmeasures introduced under the Dodd-FrankAct in the US and Europe’s AlternativeInvestment Fund Managers Directive (AIFMD)and the European Market InfrastructureRegulation (EMIR).
The Guide also reflects the greater degree ofdue diligence being conducted on primebrokers and the evolution in the primebrokerage model since the financial crisis. Itcontains guidance on appointing a primebroker and issues to be aware of whenselecting more than one prime broker, andalso highlights the likely impact of futureregulatory changes. In addition, it discussesthe core services of prime brokers and definesa number of key commercial terms.
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Selecting andPeriodicallyAssessing PrimeBrokersThis guide provides somesuggestions about what managersshould consider when they areselecting or assessing theperformance of a prime broker.There is also an accompanyingDDQ.
This Guide to Sound Practice will beof interest to:
-- COOs-- CCOs-- Product developers-- Risk management staff
This Guide, published in July 2014, provides guidance on the newregulatory framework in the US and European Union, which affects mostOTC derivatives transactions cleared globally. The Guide to SoundPractices is supplemented by a Due Diligence Questionnaire for ClearingMembers, which is intended to help asset managers during the process ofevaluating different clearing members and clearing houses.
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OTC Derivatives ClearingThe Guide to Sound Practices for OTC DerivativesClearing will be of interest to:
-- General counsels-- Portfolio managers
For funds, the fund administration relationshipis second in importance only to the investmentmanagement arrangements. The administratorperforms many vital functions for the fundand, as a result, significant care andconsideration should be taken in selecting anew administrator and choosing to continuean existing relationship with an administrator.This will assure that the services to be providedare of the highest quality and suited to theneeds of the fund and its investors and thatthe administrator will work well with theinvestment manager.
This Guide examines various aspects of therelationship that funds and investmentmanagers have with fund administrators, fromthe start of a new relationship through to theend of a relationship and transition to a newone. The Guide frames what funds andinvestment managers should consider whenselecting a new administrator or assessing theongoing service of an existing administrator,specifically looking at sound practices inrelation to assessing the administrator’sservices and practices in relation to:
• On-boarding and starting newrelationships: The amount of regulatoryand compliance obligations involved inaccepting a new client’s business requiresa review of the subscription agreements,the offering memorandum, the SLAs andKPIs, AML/KYC/CTF matters in relation tothe fund and the investment managerand the administration agreement, all ofwhich are explored in greater detail inSection 2 of the Guide;
• Relationship management andoversight: Section 3 of the Guideoutlines the importance of theinvestment manager establishing andagreeing a clear relationshipmanagement and interaction processwith the administrator from the outset,and outlines some key considerations theinvestment manager should considerwith regard to both the oversight andrelationship management processes;
• Transfer agency and paying agentservices: Section 4 of the Guide
Selecting andPeriodicallyAssessing FundAdministrators
outlines the formal role of a transferagent and the role they play in relationto subscription, redemption, transfers,bank accounts, cash payments and thesignatory process;
• AML/KYC/CTF checks: The purpose ofAML/KYC/CTF policy is to protect thefund, the investment manager, theadministrator and its clients from beingassociated with money laundering orother criminal activities. The appliedAML/KYC/CTF policies should includeKYC screening, processes forsubscriptions and redemptions andverification of clients and their source offunds or wealth, bearing in mind countryrisk, all of which is covered in Section 5of the Guide;
• Fund accounting and NAVcalculations: Section 6 of the Guidelooks at the role the administrator playsin the key stages of the NAV process,from initial trade capture reflection in thebooks and records, through to allocation
of P&L and calculation of fees. Thecalculation of the fund’s NAV is one of theprimary roles of an administrator, withthe administrator needing toindependently calculate the NAV for eachfund on an accurate and timely basis;
• Middle office services: Section 7 of theGuide highlights the key considerationsthe investment manager should assesswhen outsourcing middle office servicesto an administrator;
• Financial reporting: Financial reportingand regulatory reporting have becomefar more important in the currentenvironment, and the depth and type ofsuch services are explored in Section 8of the Guide along with the howadministrators are able to assist in theseareas;
• Other reporting to investors andregulators: Section 9 of the Guideoutlines how the administrator can assistwith investor reporting and other
regulatory, tax and systematic riskreporting obligations;
• Monitoring undertaken by theadministrator: The administrator canoffer the investment manager valuablepost-trade monitoring services includinginvestment strategy and restrictioncompliance, investor profiling and U.S.investor monitoring, all of which isdiscussed in Section 10 of the Guide;
• How the administrator providesservices: Sections 11, 12 and 13 of theGuide outline the servicesadministrators offer, and consider someof the relevant regulations namelyaround outsourcing by investmentmanagers that may impact how theadministrator delivers services to theinvestment manager. These sectionsalso explore some of the operationalrisks related to the administrator’sbusiness;
• Additional services the administratormay provide: Although the primary roles
of the administrator are to calculate thefund’s NAV and record its investortransactions, there may be other servicesthe administrator can provide to theinvestment manager and/or the fund,including, company secretarial servicesfor example. Some of these additionaltypes of services are discussed in Section14 of the Guide; and
• Off-boarding/transitioning: It isimportant that the investment manageris satisfied with the administrator’stermination process, and that theadministrator is able to demonstrate thesteps that would be taken if theinvestment manager and/or the fundwere to issue a notice of termination.Section 15 of the Guide highlights theconsiderations the investment managershould keep in mind when reviewing theadministrator’s termination process.
The Fund Directors’ Guide (the ‘Guide’) is theinitiative of AIMA’s Sound Practices Committee.AIMA first published the Guide in June 2005 andlast revised it in 2008 under the title AIMA’sOffshore Alternative Fund Directors’ Guide. TheGuide has three principal audiences in mind,which are, in no particular order of importance:
• investment managers and promoters ofalternative funds;
• individuals who are consideringbecoming directors of an alternativefund; and
• the appointed board of directors of analternative fund.
The Guide examines some of the practical,legal and tax considerations when selectingand appointing directors of an alternativefund; it explains the basic tasks that funddirectors should carry out and suggests waysin which fund directors could manage theirrelationships with the fund’s service providers.It contains general advice on several importantissues, including the review of the annualaudited accounts and issues relating to
directors’ and officers’ liability insurance.Naturally, the potential impact of taxation on afund is an important driver; consequently, theGuide considers the impacts of taxation invarious specific jurisdictions affecting the fund,service providers and the directors.
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The Guide has been updated to reflect newregulatory and tax developments (e.g., AIFMDand FATCA) and adds new sections coveringthe general approach to fund governance,monitoring of trading practices, insider tradingand business continuity planning. We haverevised the main body of the Guide to be morejurisdiction neutral and added appendices to
Fund Directors'GuideThe Fund Directors' Guide (3rdEdition, 2015) was developed inorder to assist managers and funddirectors in enhancing fundgovernance.
This Guide should be of interest to:
-- Fund directors-- Potential fund directors-- Investment managers-- Investors
address Bermuda, Cayman Islands, Guernsey,Ireland, Jersey, Luxembourg, Malta and USfunds.
The Guide, published in October 2015, isdesigned for hedge fund managers that areconsidering adding a UCITS or a mutual fundregistered under the Investment Company Actof 1940 (a ‘Liquid Alternative Fund’) to theirproduct offering and provides an overview ofthe range of issues that a hedge fundmanager is likely to face in setting up a LiquidAlternative Fund. The Guide brings togetherthe experience of practitioners from a widerange of fields in the alternative investmentindustry, and is meant to emphasise thepractical considerations that are most relevantfor a hedge fund manager’s decision-makingprocess. The Guide takes into account thelatest major regulatory and tax developments,and addresses some of the differentjurisdictional requirements and practicesaffecting funds established in Ireland,Luxembourg and the United States, which arethe most common jurisdictions for LiquidAlternative Fund structures.
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UCITS andAlternative MutualFundsAIMA's Guide to LiquidAlternative Funds examines theissues arising when managingUCITS and alternative mutualfunds.
This Guide may be of interest to:
-- Product development staff-- Legal and compliance staff
Managed accounts typically offer an investor theability to invest in alternative investmentstrategies with greater control over their ownassets and greater transparency and flexibilitythan would be available in a traditionalcommingled fund structure. Investmentmanagers are increasingly amenable to usingmanaged accounts to diversify their asset raisingoptions.
Investor demand for managed accounts existsbecause, among other things, managed accountsoffer investors:
• Control over how the account is funded,structured and governed;
• Depending on the structure, the ability toselect service providers for the account;
• Greater transparency with respect to theassets traded;
• Greater flexibility to negotiate with theinvestment manager on:
1. Risk management guidelines;2. Investment parameters, including any
divergence from the investment strategy
of the reference fund, if applicable;3. Leverage use;4. Liquidity and the ability to increase or
decrease funding of the managedaccount periodically;
5. Reporting;6. Management fee and performance fee
amounts and calculation methods;
• Insulation from the types of impacts thatinvestors in traditional commingled fundcan have on each other when theysubscribe or redeem in large amounts;and
• For certain institutional investors who donot invest in commingled accounts, theability to invest in certain alternativestrategies.
There are also some potential disadvantages tomanaged accounts from an investmentmanager’s perspective that should be considered(and negotiated with the investor whereapplicable) before initiating a mandate:
• Increased operational risks from any
Managed AccountsGuideAIMA's Managed Accountexamines the issues arising whensetting up and managedmanaged accounts.
This Guide may be of interest to:
-- Product development staff-- Legal and compliance staff
counterparties and service providersselected by the investor rather than bythe investment manager;
• Increased operational and performancerisks from trade allocation (e.g.,rounding, sub-division of certain typesof trades like futures), use of multipleprime brokers, give ups, managementof trading errors) where the managedaccount is trading pari passu with areference fund as every trade will besubject to an allocation;
• Additional or different transparency andreporting obligations than apply to theinvestment manager’s commingledfunds;
• Further conflicts of interest;• MFNs with other clients, which may cause
the investment manager to provide anyadditional benefits negotiated with amanaged account investor to any clientwho already has an MFN in place; and
• Increased regulatory burdens (includingAML/CTF/KYC, FATCA, etc.).
For smaller investment managers (and
sometimes for larger ones), the increasedoperational and regulatory burdens do come at acost. Additional resources are often required andthere are inherent risks in expanding theinvestment manager’s reporting infrastructure.For these reasons, investment managers oftenset large minimum investment thresholds.
The Managed Account Guide explores thesetopics and more in greater detail.
This Guide, published in June 2016, aims toidentify a common set of sound practices thatwill help investment managers build a stableinvestor base, a key pillar of a sustainablehedge fund business. The guide comes at atime of great change for how clientrelationships are managed, investmentmanagement brands are built and assets areraised and retained.
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As the industry continues to institutionalise,the remit of investor relations (‘IR’) teams isevolving along with the industry itself.Increased transparency and heightened
expectations around communications meanthat those professionals with client servicingresponsibilities now may require additionaltechnical knowledge in order to respond toinvestor queries and present regular updateson the fund and portfolio. Infrastructure andsystems should be able to accommodateinvestor reporting in an efficient and securemanner.
Marketing is moving beyond just the productionof pitch books. Branding is gaining currency andmarketers consider how to best build thatbrand through a clear definition of aninvestment manager’s edge, a campaign ofthought leadership and strategic usage ofmedia, both traditional and social. And when itcomes to raising assets, investment managersare increasingly working directly with largeinstitutions which often entails reviews byinvestment consultants, deep operational duediligence dives and a great deal of patience.
This is all occurring against a backdrop ofregulatory change and heightened enforcementscrutiny on marketing compliance. IR teams
Guide to SoundPractices forInvestor RelationsThe Guide to Sound Practices forInvestor Relations looks at whatmanagers should be consideringwhen approaching investors.
This Guide to Sound Practices willbe of interest to:
-- Investor relations professionals-- Legal and compliance staff
work closely with their investment, operations,legal and compliance peers to coordinate acompelling, commercial and compliant offering.
Among the topics the guide addresses are thestructure and responsibilities of the IR function,investor communications, marketing, fundraising,due diligence, subscriptions and redemptions.
The Guide contains sections on creating and executing a media relationsstrategy, social media and 'traditional' media, compliance issues andoutsourcing PR support. The new edition reflects the impact on hedge fundmanagers' media engagement of a number of recent trends including theon-going institutionalisation of the industry, the JOBS Act, the emergence ofa retail client base and the expansion of Twitter, LinkedIn and other socialmedia channels. The goal of the original Guide, “to encourage all in thehedge fund industry to consider the benefits of positive awareness and ofbuilding credibility, for yourselves as well as the wider industry”, remains asvalid as ever.
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Guide to Sound Practices forHedge Fund Managers' MediaRelationsThis Guide will be of interest to:
-- Investor relations staff-- Legal and compliance staff
This Guide, published in February 2016, sets outprinciples that small- to medium-sized hedgefund managers should consider when developingan Operational Risk Management (‘ORM’)program as part of their overall compliance andoperations. With the increased scrutiny of hedgefund managers by institutional investors,regulators and the media, particularly post-2008,the focus on a hedge fund manager’s ORMprocesses and procedures has multiplied.Following this trend, institutional investors andORM specialists routinely recommend thatemerging managers adopt “sound practices”.AIMA hopes that this Guide will provideadditional insights for its manager memberslooking to improve their operations, andunderstand what next steps could be consideredas an investment manager’s AUM grows.
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Guide to SoundPractices forOperational RiskManagementThe Guide to Sound Practices forOperational Risk Managementfocuses on the activities thatshould be undertaken toeffectively manage operationalrisks.
This Guide is likely to be ofinterest to:
-- COOs-- Legal and compliance staff
Technological advances have brought greatefficiencies to alternative asset managers(referred to throughout this Guide genericallyas ‘investment managers’), but not withoutintroducing new and unexpected risks. Rapidtechnological developments often tend tointroduce both novel opportunities andpreviously unimagined risks. In today’s world,cyber security is one of the biggest challengesfacing business and it is often difficult toappreciate what businesses should really beworried about in terms of cyber threats. Untilnow there has been very little guidance tailoredto investment management firms in general,and alternative asset managers in particular.This has raised questions both aboutinvestment managers’ understanding of thevarious cyber security-related issues and howthey could impact their businesses, as well astheir overall level of preparedness.
Investment managers who have consideredthe extent of cyber risks in their business willalready know that there is no one-size fits allsolution: each investment manager’s reactionmust be appropriate to them, and
proportionate to their budget. Throwingmoney at the problem is not always the mosteffective solution. With this in mind, theGuide walks through the materialconsiderations in the wider cyber debate toenable investment managers to haveinformed internal discussions about what theyneed to do within their own organisations torespond to the threat and continue to be aneffective investment manager.
Some of what is referenced in the Guide manyinvestment managers may do already, some ofit may be new or provide a new angle to thedebate for some investment managers, andthere will be much along the scale in between,but the overall message is that doing nothing isnot an option.
The Guide is not intended to be the solution toany investment manager’s cyber securityissues. It is designed to frame the principles ofthe debate rather than directing it. The Guideseeks to enable those responsible for theimplementation of a cyber security programmeto really understand the universe of problems
Guide to SoundPractices for CyberSecurityThe Guide to Sound Practices forCyber Security is updatedperiodically to keep it fresh. Themost recent update waspublished in July 2017.
This Guide will likely be ofinterest if you are:
-- CTO/CISO/head of technology-- COO-- General counsel/head of legal
as well as to consider more sensibly what is andwhat is not applicable to them. The Guide alsotries to differentiate between what are seen asadvanced defensive techniques and thosewhich are more basic to enable some selectionto be made between base layer protection andsomething more complex. While there is anacknowledgement of the most sophisticated ofcyber threats and protection techniques, thefocus of this Guide is to concentrate upon doingthe straightforward things really well.
The Guide will help investment managers:
• understand their critical assets andthreats targeting these assets in order todetermine what their overall risk to thethreat is;
• assess what their cyber security goals arein the context of their risk tolerance; and
• assess whether their current governancestructure and existing informationsecurity policies and procedures aresufficient for meeting those goals.
The Guide will also assist investment managersin improving their understanding of the natureand scope of the cyber threats facing them andthe developing regulatory context beingapplied to cyber security matters. Section 2 ofthis Guide explores the nature and scope ofthe cyber threat facing investment managers,looking at the types of attackers and whatmotivates them, and it also provides some realexamples to illustrate the current threatenvironment. Section 3 then discusses thedeveloping regulatory context.
Because the hedge fund community sharesmany common features with other players inthe financial services world, an investmentmanager’s reaction needs to consider the sameissues:
• employee education,• executive engagement,• ongoing monitoring,• proper procedures and auditing,• self-testing,• personal device control,• managing risks from relationships with
third-parties, and• appropriate insurance.
Accordingly, the rest of the Guide elaborateson the considerations relevant to thedevelopment, operation and maintenance ofan effective cyber security programme. Thediscussion in the Guide focuses on matterssuch as governance, employee relatedconsiderations, the technology that can beused for data protection, threat preventionand threat detection and how thesetechnologies can be developed in-house orusing cloud services.
AIMA is pleased to present the updated 2018version of the Guide to Sound Practices for theValuation of Investments. The alternative assetfund industry has continued to develop andmature since the last version of the guide waspublished in October 2013. Although thesignificant challenges that arose immediatelyfollowing the financial crisis have beenmoderated by new regulatory requirements andthe passage of time, valuation remains acontinuing area of regulatory, accounting andinvestor scrutiny. In addition, a significantincrease in the numbers and types of alternativeasset funds investing in and holding illiquidassets has heightened interest in valuationsprocesses. AIMA believes that the enhancementof sound practices in the area of valuation is anongoing process, given the evolution of thedifferent types of instruments, anddevelopments in valuation techniques in thecontext of a changing regulatory environment.
The vast majority of alternative fund managersbehave in a responsible manner and take theirfiduciary duties very seriously. Their reputationand future success relies upon their reliability,
transparency and credibility in the eyes ofexisting and potential investors. Such investmentmanagers have an obvious vested interest in theongoing stability of financial markets and theequitable treatment of investors. AIMA’s previousvaluation guides have demonstrated thatopinions and techniques may vary but that moststakeholders understand the issues that ariseand seek to address them as diligently as thosewho operate inother financial sectors. The valuation of financialassets is an area where inherent risks can neverbe eliminated, regardless of how simple the assetclass or investment vehicle may appear. Thisfourth edition of the guide seeks to reflect thechanges in the markets and industry with respectto valuation since 2013. We have expanded thenumber of recommendations by one, to 17, andenhanced and updated a number of the existingrecommendations to reflect trends in valuationprocesses during that period. This version of theguide also better reflects the valuation practicesthat have developed in the wake of theimplementation of the AIFMD.
Guide to SoundPractices for theValuation ofInvestmentsThe Guide to Sound Practices forthe Valuation of Investments is a"must read" for people involved infund valuation.
You will be interested in readingthis guide to sound practices if youare:
-- CFO-- COO-- Investor relations
These recommendations on hedge fundvaluation, which AIMA has developed over time,have been recognised and acknowledged globallyby regulators. The recommendations reflectsound practice in alternative asset fund valuationin the current environment.
The guide sets out and elaborates on:
Recommendations regarding governance
• adopting a Valuation Policy Document;• the contents of a Valuation Policy
Document;• establishing a fair value hierarchy;• segregating duties;• overseeing the valuation process;
Recommendations regarding transparency
• making appropriate disclosures toinvestors;
• disclosing any material involvement ofthe investment manager in the valuationprocess;
• providing transparency reporting to
investors;
Recommendations regarding procedures,processes and systems
• segregating the valuation process fromthe investment process;
• managing investment managerinvolvement in the valuation process;
• maintaining consistency with accountingstandards;
• applying and deviating from the policiesin the Valuation Policy Document;
• managing price challenges andinaccurate vendor sourced prices;
Recommendations regarding sources, modelsand methodologies
• establishing primary pricing sources;• using broker quotations;• using pricing models and pricing
matrices; and• valuing side-pockets.
It is common for investors in funds (particularly,institutional investors such as funds of funds,pension plans, sovereign wealth funds andgovernment plans) to seek special terms andconditions to govern their investments. Whensuch special terms and conditions are agreed,the fund and/or its investment manager oftendocuments the agreed terms and conditions ina “side letter” agreement.
AIMA's Side Letter Guidance 2015 updatesearlier side letter guidance and touches onconsiderations around:
• The terms of fund constitutionaldocuments and offering documents notprohibiting side letters;
• What the terms of side letters mightinclude;
• Directors' duties when considering sideletters;
• The parties and signatories;• When a side letter might cause the need
for a new class of units/shares;• Disclosure of side letters to investors and
prospective investors; and
• Ongoing management and monitoring ofside letter obligations.
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Side letter guidanceNow in its second edition, ourside letter guidance is a valuabletool for fund governing bodiesand for investment managers.
This guidance may be of use to:
-- General counsels/heads of legal-- COOs-- CCOs-- Fund governing bodies
AIMA published its Guide to Sound Practicesfor Paying for Research in September 2016.The Guide aims to provide guidance toinvestment managers who purchase externallysourced equity or fixed income research onbehalf of their client accounts. It aims to clarifyindustry sound practice in relation to thepayment for research and to help investmentmanagers understand their role andresponsibilities to their clients when usingclient’s assets to pay for research. The Guidefocuses on the basic principles underlying theregulation of the payment for research, whichshould be internationally applicable, butexamines the regulatory regimes in the U.S.and the UK more thoroughly.
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Paying for externalresearchThis Guide may be of interest to:
-- Legal and compliance staff-- Portfolio management staff-- COOs
Which of these would bethe most useful to you?
A guide to soundpractices for outsourcing
Trade error guidance
A reportingrequirement census
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If you have other suggestions orcomments, please contact us [email protected].
What's next?We continue to developsound practices anddue diligencequestionnaires.
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Bridging the Gap withSound Practice Guidesand DDQs
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