As many of you know, Wall Street Warfighters < http://www.wallstreetwarfighters.org/ > is an organization focused on benefiting Service Disabled Veterans. Its mission is to identify, develop and place disabled veterans in long-term professions in the financial services industry following their military service.

The Inaugural NYC "Warrier Poker - Celebrity Charity Poker Tournament" is to be held on the Intrepid Sea, Air, and Space Museum on Thursday September 30, 2010

The "Warrier Poker - Celebrity Charity Poker Tournament" features Tony Sirico (The Sopranos) and will feature other celebrities and pro poker players as they become available.

for more information, contact: David J. Walker, Managing Partner, COO, Flintlock Capital Asset Maangement, LLC: david.walker@flintlockcap.com or 212-537-4421

Once expectations have been set and a good TMA is in place the next step is to begin working with a (hopefully your) prime broker to get the account up and running. In this Part II of the blog we will talk about the nuts and bolts of opening an account including executing on the TMA to working with prime brokers and allocating bulk trades via your executing brokers.

If your fund is not a new launch you may have forgotten all the things you had to put in place to fulfill the operational requirements of the fund. Hopefully you kept good notes because you now have to do it all over again for the new managed account including replicating ISDA’s, broker agreements, FX arrangements, client specific ID’s if needed in foreign jurisdictions, etc, etc. If the managed account is on the small size you may also run into the prime broker’s reluctance to open ISDA’s and other arrangements on the same terms as your core fund.

One of the key compliance issues is your policy on trading practices and potentially using bulk trades with allocations to each fund/account. When dealing with bulk trades and allocations there needs to be a policy in place to insure that neither the managed account nor the fund is receiving preferential treatment on trades. What will be your policy regarding bring the account back into balance with your core fund if you have agreed to run the managed account pari passu? Mid-month liquidity can wreck havoc on your trader depending on your and your client’s expectations. Additionally, if the prime broker of the managed account is not the same as your core fund you now have the challenge of (hopefully seamlessly) allocating trades. Depending on your investment and trading style you may be able to get away with using a simple trading system however if you use multiple executing brokers and deal with securities globally you may need to look at additional in-house capabilities such as OASYS.

Daily reconciling of the account for cash and positions also remains your responsibility. You’ll probably have a new administrator to work with so be prepared to deal with their unfamiliarity with your account and practices. You’ll typically be expected to either prepare the invoice yourself for management and incentive fees or at least be able to verify that the numbers your client provides are accurate. If you are not setup with an internal portfolio and partnership accounting package then now may be a good time to consider one. Software in the sub-$20k range is now available to handle these requirements. Remember the administrator on the managed account is not your vendor and you therefore have much less control and flexibility over them than the one you use for your fund.

In summary, while having a managed account is an added layer of complexity to your firm but if you are prepared it can be great asset and if you do a good job can it set you apart from your peer firms.

Duncan Huyler, CFO, 360 Global Capital

Post-Madoff and post-Lehman one of the more significant predictions in the hedge fund space was the potential for a huge increase in the number of separately managed accounts (SMAs). Increased transparency and the demands for liquidity after the meltdown the industry experienced in the recent past brought SMA advocates out of the wood work. The reality is that the "trend" may have been overblown or at least overhyped, however, for those funds willing to embrace the trend there is a differentiator that is potentially valuable and even lucrative.

Working with an allocator that has previous experience with SMAs can be a relatively simple process if you have your back-office operations in order. Ideally the Trading Management Agreement (TMA)—the contract that defines the role of the trading manager and the advisor-- calls for the portfolio to be traded pari passu to your core(target) fund. Any variation between the investment policies in the OM of the target fund and that of the SMA should be clearly spelled out in the TMA. Legal counsel should be enlisted to insure protection of the investment advisor in regards to indemnification- not just who is indemnified, but for what and by whom. The role of soft dollar accounts, expenses that can be charged to the SMA, the charge-back for admin, legal & audit fees as well as when & how the management fee and incentive fee are payable should also be detailed in the TMA. Confidentiality clauses need to be agreed upon as do expectations on reporting requirements.

Performance between the SMA and the core fund should be essentially identical however, differences can occur especially with significant cash flows. A policy should be in place so that when cash flows occur trades are placed to bring the account back into balance with the target fund. The trading manager should be prepared to reconcile any variances in performance to the satisfaction of the account owner.

If expectations have been set and a good TMA has been reviewed and is in place the next step is to begin working with a (hopefully your) prime broker to get the account up and running.

In Part II of this blog we will talk about the nuts and bolts of opening an account including executing on the TMA to working with prime brokers and allocating bulk trades via your executing brokers.

Duncan Huyler, CFO, 360 Global Capital, LLC

In my last blog post I talked about boiler plate agreements used by vendors that service the hedge fund industry. Today, let’s look at agreements used when the hedge fund or the hedge fund manager is the "vendor." The most common agreement in this category is probably the subscription agreement by which an investor purchases an interest in the hedge fund. The subscription agreement memorializes the terms of the investor’s purchase by incorporating information contained in the hedge fund’s private placement memorandum (or equivalent document) and soliciting certain information and representations from the investor regarding their eligibility, authority and understanding of the investment. Subscription agreements are standardized to insure that only "eligible" investors are allowed to purchase interests and so that all investors "invest" under the same terms. Generally, if modifications are made to the terms of investment, it is done through a "side letter" rather than an actual modification to the wording found in the subscription agreement. As is the case with any vendor, it is in the hedge fund’s best interest to treat all of its investors equally and, therefore, to enter into as few side letters as possible.

Another agreement commonly used by hedge funds is the investment management agreement between the hedge fund and its manager. This agreement generally also incorporates the terms of the hedge fund’s private placement memorandum as the standard by which the manager will manage the hedge fund’s affairs and invest its assets. It is through the ratification of the investment management agreement that the directors of a hedge fund (if organized as a corporation) delegate the investment management authority to the hedge fund manager. By signing the investment management agreement, the hedge fund manager accepts certain fiduciary responsibility for the hedge fund and, in turn, its investors.

If a hedge fund manager also provides services to managed accounts, a third agreement that could be viewed as a combination of the subscription agreement and the management agreement will be common. This agreement is the investment advisory agreement between the owner of the account to be managed and the hedge fund manager. Since investment advisory services to managed accounts are not offered by way of a private placement memorandum, the investment advisory agreement generally will contain in its body, or as an appendix, detailed information on the investment strategy intended for the managed account as well as the related risks. The investment advisory agreement delegates authority for the investment management of the account by the account owner to the hedge fund manager. The hedge fund manager obtains the necessary information, representations and approvals from the account owner through the investment advisory agreement.

The private placement memorandum and equivalent information for a managed account, the subscription agreement, the management agreement and the investment advisory agreement are all closely related. It is important that they are not inconsistent with each other and that both the information and representations they contain are correct. They also need to be consistent with the current practices and strategies of the hedge fund manager. What process do you use to insure this consistency? How often do you request updated information and representations from your investors and managed account owners?

Michelle Kline, Member of the HFBOA Executive Board