Skip to content

EisnerAmper’s CFO Roundtable: Best Practices from an Investor Perspective

Aug 5, 2016

Investcorp’s Hedge Fund Chief Operating Officer John Franklin weighs in on a handful of best practices fund managers should employ to meet their fiduciary obligation to investors. 

Fund managers have the fiduciary obligation to not only employ a number of best practices for their investors, such as pensions. However, when they take a step back and think about who the beneficiaries of these plans are, such as retirees, it will give them a new perspective to ensure responsibility to them as well. 

At the most recent EisnerAmper CFO Roundtable which took place July 19, industry veteran John Franklin, COO, Alternative Investment Solutions for Investcorp, a New York and Bahrain-based $10 billion alternative investment manager, outlined different areas where managers may be expected to implement best practices in order to ensure investor confidence on the heels of new industry standards and change. 

Here are a handful of areas he addressed and how managers can comply:  

Counterparty Risk Management

  • Fund managers should manage their counterparty risk by closely monitoring different metrics or indicators such as CDS spreads, equity prices, and default probabilities among others.  The manager should identify specific threshold levels for each of the metrics, and should these thresholds be crossed, it is important they have a specific action plan in place at each relevant threshold and are prepared with a leveling of responses as risks increase/triggers are hit.  
  • Funds should also consider having a designated chief risk officer or a risk committee generally chaired by the CRO.  These roles are required by investors as they are generally responsible for oversight of counterparty risk management in addition to other risk management functions.


  • The SEC expects thorough documentation of fund managers’ investment ideas, especially in light of the increased focus on market manipulation and insider trading.  Depending upon the strategy traded, fund managers can adhere to this requirement by documenting each investment idea that exists in the portfolio (ideally there should be both qualitative and quantitative support), investment committee meeting proceedings and market research and, further, compliance oversight for all types of communication.  

Disaster Recovery

  • Every fund manager is expected to have a disaster recovery plan in place and to test that plan. Further, funds should conduct these tests during the week, to tie into when markets are moving so they can tell if the plan is effective at all times.  


  • At a minimum, managers need to implement a cybersecurity policy. Further, investors expect managers to conduct penetration tests and consider the help of consultants for implementation, since investors can often request documentation of these tests to ensure their policy is effective.  

Fees and Expenses

  • Only categories of expenses that have been disclosed to investors in the funds offering documents are eligible to be charged back to a fund.  Managers need to carefully monitor the allocation of expenses so that only appropriate expenses are charged back.  Any expense allocation methodology used by the manager to allocate eligible but non-fund specific expenses, such as research and/or technology costs, need to be well documented.  
  • You can think of expenses as falling into 3 categories: ones that are allowed, ones considered grey areas, and finally ones that are atypical. Managers need to be aware which are typically allowed, which are subject to further assessment and those that are not typically allocated to the fund level.  Lastly, depending on the strategy, there are generally acceptable basis point ranges of expenses for a fund. 

Service Providers  

  • Managers can appoint an audit firm to perform and issue an SSAE 16 report on internal controls (formally known as a SAS 70 report) to ensure they comply with internationally recognized auditing standards regarding an organization’s controls and safeguards.  


  • Managers need to ensure their fund terms match with the liquidity of their underlying structure.   

Overall, managers need to evaluate current market trends and listen to the requests of their investors to ensure they have response plans in place to contribute to a successful business union.

What's on Your Mind?

a man in a suit smiling

Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

Start a conversation with Elana

Receive the latest business insights, analysis, and perspectives from EisnerAmper professionals.