ASSET PRICING AND FUND VALUATION PRACTICES IN THE HEDGE FUND INDUSTRY

16. The first area I will cover is the recommendations on governance. An overriding theme, here as with other industries, is that the board of directors, the general partner or the trustees (as applicable) carry the ultimate fiduciary duty to the fund constituents, which includes the valuation process. I will refer to this governance body as the �board� during the rest of my presentation. One key to good governance is the documentation, codification and regular update of key fund valuation policies. These policies need to be known throughout the organization and be taken seriously from the top down. Another key is the segregation of duties. By eliminating entirely or severely limiting the involvement of the investment managers in the valuation process, inherent biases can be better managed. This generally means using an independent pricing group to value the fund�s assets. The board needs to assess and monitor the performance of the fund valuation group with respect to day to day valuation issues. Furthermore, the board must be confident that appropriate steps have been taken to value fairly and consistently those securities that are complex or hard to price. Its our experience in Canada that there is tremendous variation in the extent and role of boards in the valuation process. The first area I will cover is the recommendations on governance. An overriding theme, here as with other industries, is that the board of directors, the general partner or the trustees (as applicable) carry the ultimate fiduciary duty to the fund constituents, which includes the valuation process. I will refer to this governance body as the �board� during the rest of my presentation. One key to good governance is the documentation, codification and regular update of key fund valuation policies. These policies need to be known throughout the organization and be taken seriously from the top down. Another key is the segregation of duties. By eliminating entirely or severely limiting the involvement of the investment managers in the valuation process, inherent biases can be better managed. This generally means using an independent pricing group to value the fund�s assets. The board needs to assess and monitor the performance of the fund valuation group with respect to day to day valuation issues. Furthermore, the board must be confident that appropriate steps have been taken to value fairly and consistently those securities that are complex or hard to price. Its our experience in Canada that there is tremendous variation in the extent and role of boards in the valuation process.