April 28, 2009 GRACE-IM:  Risk and Oversight Management for Hedge-funds La Meer Associates Based on best practices defin...
GRACE  <ul><li>G overnance,  R isk  A nd  C ompliance for the  E nterprise:  </li></ul><ul><li>Risk and Oversight Manageme...
Best Practice Guidance <ul><li>Objectives </li></ul><ul><li>Strengthen industry business practices through a strong framew...
Policies / Procedures –  How GRACE-IM addresses them 4 GRACE AIMA PWG MFA GRACE-IM provides a  single   repository  for al...
Investor Due Diligence & Anti-Money Laundering –  How GRACE-IM Addresses it 5 GRACE-IM creates a repository of customer id...
Disclosures to Investors –  How GRACE-IM Addresses it 6 GRACE-IM helps create a repository of fund information including t...
Trading and Business Operations –  How GRACE-IM Addresses it 7 GRACE-IM provides for setting up internal controls and rout...
Third party operational risks – How GRACE-IM Addresses it 8 GRACE-IM provides a repository of third party vendor informati...
Valuation –  How GRACE-IM Addresses it 9 GRACE-IM helps the fund build a repository of valuation frameworks and models, in...
Risk Management –  How GRACE-IM Addresses it 10 GRACE-IM provides the repository of risk management processes and procedur...
Business  Continuity and Disaster Management –  How GRACE-IM Addresses it 11 GRACE-IM  creates the repository for all IT a...
Compliance, Conflict & Business Practices –  How GRACE-IM Addresses it 12 GRACE-IM  creates the repository of procedures, ...
GRACE-IM Overview for Hedge funds GRACE-IM Fund Investor Counterparty Vendors & Service Providers <ul><li>Fund Information...
<ul><li>How GRACE-IM empowers those who manage risk </li></ul><ul><ul><li>Line Managers : </li></ul></ul><ul><ul><ul><li>A...
CUSTOMER ROI <ul><li>Visibility, Transparency, & Standardization  </li></ul><ul><ul><li>Business-as-usual processes for ri...
Contact us <ul><li>La Meer Associates </li></ul><ul><li>426 Novato Avenue </li></ul><ul><li>Sunnyvale, CA  94086  U.S.A. <...
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La Meer GRACE-IM 1.0 Presentation Hedgefund

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Presentation of La Meer Associates software application GRACE-IM 1.0 for risk and oversight management and how it address the needs of the hedgefund industry based on best practice recommendations of Managed Funds Association (MFA), President's Working Group (PWG) and Alternate Investments Management Association published in 2009

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La Meer GRACE-IM 1.0 Presentation Hedgefund

  1. 1. April 28, 2009 GRACE-IM: Risk and Oversight Management for Hedge-funds La Meer Associates Based on best practices defined by the Managed Fund Association (MFA), Alternate Investment Management Association (AIMA ), and President’s Working Group (PWG) released in 2009
  2. 2. GRACE <ul><li>G overnance, R isk A nd C ompliance for the E nterprise: </li></ul><ul><li>Risk and Oversight Management </li></ul><ul><ul><li>For C-Level Executives & Corporate Directors, Operational Risk Managers, Audit Leaders, & Compliance Managers </li></ul></ul><ul><ul><li>Standardized Framework for identification, measuring, monitoring, & managing risk </li></ul></ul><ul><ul><li>Best Practices to create sustainable & continuous controls monitoring </li></ul></ul><ul><ul><li>Aligns Operations, Risk Management, Compliance, Governance & Financial Control activities </li></ul></ul>
  3. 3. Best Practice Guidance <ul><li>Objectives </li></ul><ul><li>Strengthen industry business practices through a strong framework of internal policies & procedures </li></ul><ul><li>Encourage individualized assessment & application of recommendations </li></ul><ul><li>Enhance market discipline in the global financial marketplace to prevent systemic risk </li></ul><ul><li>Areas of focus </li></ul><ul><li>Disclosure & Investor Protection </li></ul><ul><li>Valuation </li></ul><ul><li>Risk Management </li></ul><ul><li>Trading & Business Operations </li></ul><ul><li>Compliance, Conflicts, & Business Practices </li></ul><ul><li>Anti-Money Laundering </li></ul><ul><li>Business Continuity / Disaster Recovery </li></ul>3
  4. 4. Policies / Procedures – How GRACE-IM addresses them 4 GRACE AIMA PWG MFA GRACE-IM provides a single repository for all your policies and procedures, valuation frameworks, and models. These can be updated based on changes in the business, and maintained up-to-date. Changes can be reviewed, and review comments stored for audit. All older versions of documents are also available for audit. Every Hedge Fund management business, regardless of its size, should organize its internal affairs in a responsible manner, ensuring it has appropriate systems, procedures, and controls designed to mitigate and manage the risks to which the business is subjected. This should be documented, but the extent of documentation will vary depending on the complexity of the business operations. A Manager should develop a comprehensive and integrated framework to manage trading and business operations, taking into account the size and complexity of its activities, the nature of its investment, and the requirements of its investment strategy. A Hedge Fund Manager should establish management policies and practices appropriate for its size, nature, and complexity, and for its trading activities for each Hedge Fund managed.
  5. 5. Investor Due Diligence & Anti-Money Laundering – How GRACE-IM Addresses it 5 GRACE-IM creates a repository of customer identification and AML policies and procedures to be followed for investor due diligence, before accepting a new customer, to ensure compliance. Due diligence for each investor is stored in GRACE-IM. All disclosures to attract potential customers can be reviewed for AML provisions. Periodic AML Assessments can be undertaken to ensure all processes and vendors are in compliance. In case of findings, mitigation of these can be undertaken and tracked to closure. The Hedge Fund manager should ensure that a senior manager is responsible for its AML compliance, and that all employees are kept up-to-date with developments in this area. The Hedge Fund manager should also put in place appropriate procedures and controls to ensure that the relevant rules and requirements are considered, particularly when marketing to potential investors. Anti-money laundering policies and procedures in compliance with the Banking Secrecy Act should include identifying investors prior to subscription, and periodic review of the fund’s investor base. Where anti-money laundering compliance is delegated to an administrator or third-party, periodic review of the delegate’s processes is required. As part of its overall regulatory compliance program, a Hedge Fund Manager should establish Customer Identification Procedures and AML policies and procedures, and ensure that its personnel and service providers follow appropriate investor identification procedures. GRACE AIMA PWG MFA
  6. 6. Disclosures to Investors – How GRACE-IM Addresses it 6 GRACE-IM helps create a repository of fund information including the PPM, and all disclosures that need to be sent to investors. All disclosures, including side letters and provisions can be reviewed before being sent to the investor, and stored in the system. Periodic assessments can be undertaken for legal language in the disclosure. GRACE-IM helps create a repository of regulatory announcements and changes. Impact analysis done and policies / procedure changes can be analyzed and reviewed. The changes needed can be assigned and tracked to closure. Hedge Fund managers should provide adequate disclosure of information to investors on a consistent and timely basis. Disclosure to investors should be made as soon as reasonably practicable, bearing in mind the need to protect all investors’ interests, and any applicable legal or regulatory constraints. The Hedge Fund manager should be aware of these requirements and may wish to monitor compliance with them, though it has no legal obligation to do so. The Hedge Fund Manager should provide prospective and existing Hedge Fund investors with information regarding the Hedge Fund’s investment objectives & strategies, the range of permissible investments, material risk factors, and the material terms of an investment in the Hedge Fund. This information should be sufficient to enable investors to evaluate their investments in the Hedge Fund. The organization should have a disclosure framework that includes private placement memorandum (PPM), audited financials, performance, and regular communication with investors. GRACE AIMA PWG MFA
  7. 7. Trading and Business Operations – How GRACE-IM Addresses it 7 GRACE-IM provides for setting up internal controls and routine monitoring that can report issues on a routine basis. Issues and risks can be identified as they arise, be reviewed by the relevant people, and escalation and appropriate activities can be undertaken for early mitigation. Operational risk reports can be imported and any risks identified from them classified and escalated. Periodic Assessments and Control Self Assessments can be planned and conducted. Findings are recorded in trading & business operations to identify risks in business processes and operations for adherence to defined processes, and mitigation activities are undertaken. The investment strategy to be applied by the Hedge Fund manager must be clearly documented and understood by those executing it. The investment strategy should also be disclosed to investors. The Investment decision-making should have a defined process, and the details for investors must be done based on defined practices. Conformity to mandate should be assessed. An integrated framework for trading and operations should include policies and procedures for checks and balances, operational and accounting controls for selection and management of counterparty, cash, and collateral service providers, and segregation of duties. Develop integrated framework to manage trading and operations. Conduct due diligence on counterparties. Develop and monitor cash management and collateral management framework. Use reputable key service providers. Implement infrastructure and operational practices, and core accounting practices. GRACE AIMA PWG MFA
  8. 8. Third party operational risks – How GRACE-IM Addresses it 8 GRACE-IM provides a repository of third party vendor information, including contract terms and SLAs. GRACE allows for vendor selection assessments and vendor due diligence, including business continuity, BSA/AML, and other regulatory compliance, and service level monitoring. Assessments of vendors who undertake valuation on behalf of the hedge fund can be made. Findings from these assessments can be recorded, risks categorized, and monitored for mitigation to closure. Operational reports on / from vendors can be imported into the system, and risks identified can be escalated. Senior management should not outsource risk monitoring or management, and must maintain responsibility for the overall risk framework. A Hedge Fund Manager should have appropriate approval processes and documentation for retaining sub-advisers and other external portfolio managers. Where key functions are outsourced, management must be satisfied as to the competency of the relevant service provider and should have a process in place to monitor and review work performed.  GRACE AIMA PWG MFA
  9. 9. Valuation – How GRACE-IM Addresses it 9 GRACE-IM helps the fund build a repository of valuation frameworks and models, including scenario analysis. The valuation process and model assessments can be undertaken within GRACE-IM. Findings from these assessments can be recorded and monitored for mitigation to closure. Models and frameworks can be updated, reviewed, and released for use to ensure the use of most current models and methods. Daily NAV calculation reports can also be uploaded into GRACE-IM, escalating irregularities, recording risks and mitigation action taken. There should be clear policies and procedures in place for valuing the underlying positions within the Hedge Fund, and calculating the Fund’s Net Asset Value (NAV). The Hedge Fund Manager should recognize that investors may both subscribe to and redeem in reliance on the values derived from these policies / procedures. The adoption and implementation of comprehensive, written valuation policies and procedures, consistent with best industry practice, is critical to the design and effectiveness of the portfolio valuation process.  The valuation framework should be designed to promote consistent application of such policies and procedures, and seek to provide appropriate information to investors and counterparties with a clear understanding of the inherent limitations. Comprehensive, documented policies and procedures should be established for the valuation of financial instruments held or employed by a hedge fund. The policies should identify the methodologies that will be used for valuing each type of financial instrument held or employed by the hedge fund. Policies and procedures should be reviewed periodically to ensure fit. GRACE AIMA PWG MFA
  10. 10. Risk Management – How GRACE-IM Addresses it 10 GRACE-IM provides the repository of risk management processes and procedures. GRACE-IM provides routine monitoring, internal control testing, and operational reports, including scenario analysis, loss event and incident reporting, and risk identification from assessments audits and control self assessments. Risks of different kinds, including liquidity, leverage, counterparty, credit, and operational risks are classified in a standardized way, are escalated, and mitigation monitoring is provided. The dashboards deliver powerful business analytics, including deep drill-down and actionable information on all risks. There should be a defined risk management process that is regularly applied and realistic – used to enhance performance. The process should be used to identify normal and exception conditions. The Fund Manager should establish a comprehensive and integrated risk management framework that is suited for its size, and portfolio management to include identification of material risks, measurement and monitoring of principal categories of risk, and risk reports. Key risks and exposures should be prepared and reviewed by senior management. Fund Managers should have a risk monitoring process appropriate for its size, complexity, and portfolio structure. The process should include stress testing, escalation mechanisms, reporting lines, policies, and procedures for leverage, disclosures to investors, liquidity positions of individual / overall portfolios, counterparty exposure, and ‘op risk’ exposure to potential risks, including errors in reconciliation data entry, valuation risk measurement models fraud, and system failures. GRACE AIMA PWG MFA
  11. 11. Business Continuity and Disaster Management – How GRACE-IM Addresses it 11 GRACE-IM creates the repository for all IT applications and systems, the vendors for the various systems, and business continuity and contingency management plans that can be reviewed by management as well as revised when needed. GRACE-IM allows management of the drill process and incident management in case of incidents. GRACE-IM provides for assessments and control self assessments for readiness. Findings from these can be tracked to make sure mitigation activities are undertaken to closure. The Fund manager should develop a business continuity plan for any disaster. The plan, including a full systems test, should be tested, preferably without warning, at least once per year. The company needs a clear outline for keeping the business continuity plan up-to-date. There needs to be clear ownership of the business continuity plan and regular review cycles. To mitigate financial loss in the event of disaster or other business disruption, the manager should establish a comprehensive business continuity / disaster recovery plan. Establish plan objectives to provide for continuation of essential operations in the event of a natural disaster, market disruption, terrorist attack, key person loss, or other business emergency. Detail mission-critical systems, identify personnel to achieve objectives, plan for crisis management and disaster recovery, create business continuity, contingency, and succession plans. Train and test annually. GRACE AIMA PWG MFA
  12. 12. Compliance, Conflict & Business Practices – How GRACE-IM Addresses it 12 GRACE-IM creates the repository of procedures, including the code of conduct. GRACE-IM’s assessments, audits, and control self assessment functions can be used to verify that the code of conduct is followed. Record retention and other business practice assessments can be conducted for adherence to defined procedures. Findings from these assessments can be tracked to make sure mitigation activities are undertaken to closure. Fund managers should conduct themselves in a manner which a reasonable market participant would deem prudent, honest, and reputable. Directors should ask the Fund’s Investment Manager or Administrator to produce a regular report on the Fund’s compliance with its stated investment policies and restrictions for consideration at each board meeting. The Fund manager should develop a program for records and document retention related to business operations, a written code of ethics, and a compliance manual. They should train and educate operations personnel. Maintaining high ethical standards in the business must be the responsibility of senior management and each employee. As part of the compliance program, the fund manager should develop document retention and records related to business operations, including a written code of ethics. The manager should develop a compliance manual, and train and educate business operations personnel to safeguard and prevent the misuse of information. There should be adequate controls for consistency with allocation policies. GRACE AIMA PWG MFA
  13. 13. GRACE-IM Overview for Hedge funds GRACE-IM Fund Investor Counterparty Vendors & Service Providers <ul><li>Fund Information </li></ul><ul><li>Private Placement Memorandum PPM </li></ul><ul><li>Disclosures – Reviews, Assessments </li></ul><ul><li>Client Communication Reviews </li></ul><ul><li>Assessments to meet fund objectives, compliance to regulatory, adherence to defined procedures and evaluate validity of models and methods </li></ul><ul><li>Investor Information </li></ul><ul><li>Investor Due Diligence including </li></ul><ul><li>BSA / AML and OFAC verifications </li></ul><ul><li>Client Communication Information review for </li></ul><ul><li>Potential conflict of interest </li></ul><ul><li>Confidentiality of information </li></ul><ul><li>Timely and adequate </li></ul><ul><li>Assessments to meet customer objectives </li></ul>Operations <ul><li>Trading and Business Operations - Internal Controls Monitoring, Assessments, Audits, Control Self Assessments </li></ul><ul><li>Operational reports import Cash, Collateral, Margin, Exposures, Funding, Liquidity, Accounting, Valuation - review and escalate issues </li></ul><ul><li>Assessments for adherence to defined processes - Portfolio valuation, Disclosure management, Infrastructure, Operations, Business Continuity, BSA/AML,OFAC… </li></ul>Central repository <ul><li>Policies, Guidelines, Procedures - Review, Versioning, Release Management </li></ul><ul><li>Frameworks for Valuation Methods, Models, Scenarios, Disclosure, Compliance, Operations Risk Management, AML, Code of Ethics, Business Continuity, Compliance, Conflicts, and Business Practices </li></ul>Dashboards <ul><li>My Portal </li></ul><ul><li>User settable Actionable Dashboards </li></ul><ul><li>Specialized Dashboards for each group – Risk, Governance, Compliance, Audit </li></ul><ul><li>Automated Alerts </li></ul><ul><li>Powerful Business Analytics with Deep drill down to granular data </li></ul>Risk <ul><li>Risk Identification from Assessments, Audits, Internal Control testing, Control Self Assessments, Regulatory changes, Operational Reports </li></ul><ul><li>Standardized Classification, Scoring, Monitoring mitigation, Escalation, Mitigation, Cost tracking </li></ul><ul><li>Day to day monitoring of risks from routine monitoring processes and risk reporting </li></ul><ul><li>Mitigation Monitoring to closure </li></ul><ul><li>Risks included - Credit, Liquidity, Leverage, Market, Funding, Counterparty, Operational, Legal and Compliance Risks </li></ul><ul><li>Loss identification and management </li></ul><ul><li>Incident management </li></ul>Comprehensive Standardized Integrated Centralized Risk & Oversight Management <ul><li>Counterparty information, Terms </li></ul><ul><li>Agreements, SLAs, Versions, Review </li></ul><ul><li>Disclosures – reviews and signoff </li></ul><ul><li>Due Diligence , Assessments </li></ul><ul><li>Counterparty reports from operational systems, review, escalate </li></ul><ul><li>Vendor Information, Agreements, SLAs, Versions, Review </li></ul><ul><li>Due Diligence, Assessments of Service Level, Business Continuity and Regulatory compliance </li></ul><ul><li>Reports, review, escalate </li></ul>13
  14. 14. <ul><li>How GRACE-IM empowers those who manage risk </li></ul><ul><ul><li>Line Managers : </li></ul></ul><ul><ul><ul><li>Automates the day-to-day processes for planning, execution, reporting, & mitigation for routine monitoring, internal control monitoring, assessments, control self assessments, audits, operational reporting, loss events, and incident management </li></ul></ul></ul><ul><ul><ul><li>Escalation capabilities provide early awareness of issues </li></ul></ul></ul><ul><ul><ul><li>Dashboards drive tracking, analysis, & real-time reporting </li></ul></ul></ul><ul><ul><ul><ul><li>Exceptions, issues, and escalations </li></ul></ul></ul></ul><ul><ul><li>C-Level Executives: </li></ul></ul><ul><ul><ul><li>Actionable dashboards identify areas requiring attention </li></ul></ul></ul><ul><ul><ul><li>Deep drill-down / business analytics </li></ul></ul></ul>Risk and Oversight with GRACE-IM
  15. 15. CUSTOMER ROI <ul><li>Visibility, Transparency, & Standardization </li></ul><ul><ul><li>Business-as-usual processes for risk identification, early warnings, & mitigation management </li></ul></ul><ul><ul><li>Verification of conformance & compliance to defined procedures becomes routine </li></ul></ul><ul><li>Time, Effort, & Cost Savings </li></ul><ul><ul><li>Search & Retrieval of Information </li></ul></ul><ul><ul><li>Data availability for external audits </li></ul></ul><ul><ul><li>Reporting for senior management </li></ul></ul><ul><ul><li>Follow-up for mitigation </li></ul></ul><ul><li>Efficiencies from convergence of initiatives </li></ul><ul><ul><li>Compliance </li></ul></ul><ul><ul><li>Centralized data, policies, & procedures </li></ul></ul><ul><ul><li>Eliminates duplication of effort </li></ul></ul><ul><li>Early adoption of risk management practice throughout the organization </li></ul>
  16. 16. Contact us <ul><li>La Meer Associates </li></ul><ul><li>426 Novato Avenue </li></ul><ul><li>Sunnyvale, CA 94086 U.S.A. </li></ul><ul><li>Telephone: +1 (408) 739-2562 </li></ul><ul><li>Email: [email_address] </li></ul><ul><li>Web: http://www.lameera.com </li></ul>
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