Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002)Board NoticesDetermination on the requirements for hedge fundsPart 4 : General Provisions Applicable to all Hedge Fund24. Risk management, risk management policy and risk manager |
| (1) | A manager must establish, document, maintain, and enforce a risk management policy, which must provide for the management of operational risk, business risk, liquidity risk, and credit-counterparty risk, appropriate to the nature, scale and complexity of its business, and for— |
| (a) | the measures, techniques and procedures which must be employed to measure and manage risks, including risk measurement techniques to carry out stress tests, back tests and scenario analysis appropriate to each portfolio's investment strategy, taking into account the different risk profiles that may apply to each portfolio; |
| (b) | appropriate and timely corrective actions, where stress tests and scenario analysis reveal particular vulnerability to a given set of circumstances; |
| (c) | the frequency with which stress tests and scenario analyses must be conducted depending on the nature of the portfolio, the investment strategy, liquidity profile, type of investor and repurchase policy of the portfolio; |
| (d) | independent performance of the risk management function, including details of the allocation of responsibilities within the manager for risk management and operating procedures; |
| (e) | risk management to be performed on a daily basis; |
| (f) | appropriate internal control mechanisms to avoid or mitigate operational failures, including professional liability risks; and |
| (g) | procedures to ensure— |
| (i) | on-going monitoring of the total value of the assets under management; and |
| (ii) | adjustments to the amount of coverage for professional liability risks following any significant change in assets under management. |
| (2) | A manager must review the risk management policy when necessary, but at least annually. |
| (3) | A manager must establish a risk function separate from its investment management function and fund administration function, which function must— |
| (a) | determine the risk management policy of the hedge fund; |
| (b) | conduct active risk measuring; |
| (c) | perform risk monitoring and reporting; and |
| (d) | ensure, on a daily basis, that the risk limits are complied with. |