The Personal Account Dealing Policy Hedge Fund Managers Need Before the First Allocation

The personal account dealing policy hedge fund allocators ask for is a short document with five working parts. It defines who is covered, requires pre-clearance, maintains a restricted list and blackout window, runs a reporting cycle, and shows that someone reviews the reports. Rule 204A-1 under the Investment Advisers Act of 1940 is the reference most due diligence teams use. It fixes the calendar: an initial holdings report within 10 days, quarterly transaction reports within 30 days of quarter end, and an annual holdings report. UK managers work from COBS 11.7 and SYSC 10 in the FCA Handbook, which reach the same controls from the conflicts side. A two to five person manager can run this policy without a compliance department, and the allocator's question is whether it does.

"We read personal account dealing as a test of whether a manager has separated its own money from the fund's money in its habits, not just in its documents. The policy itself is rarely the problem. What we look for is the evidence behind it: the broker statements arriving without being asked for, the pre-clearance log with a refusal or two in it, and someone other than the compliance officer reviewing the compliance officer's own trades. A small team that can show that has answered a question most allocators will otherwise keep asking." David Lloyd, Chief Executive Officer at CV5 Capital

Executive Summary

A personal account dealing policy governs how the people who run a fund's strategy trade for themselves. Allocators request it early because it is the cheapest evidence of whether a manager puts fund investors first.

• Rule 204A-1 binds SEC-registered advisers and is the framework allocators recognise, so other managers generally adopt its structure as practice.
• The rule's calendar is fixed: initial holdings within 10 days, quarterly transactions within 30 days of quarter end, annual holdings each year, and pre-approval of every IPO and private placement.
• Pre-clearance, restricted lists, blackout windows and holding periods are not required by the rule; the SEC's adopting release lists them as elements to consider.
• In the United Kingdom, COBS 11.7, COBS 11.7A and SYSC 10 require arrangements that prevent conflicted personal transactions, prompt notification, and a record of every authorisation or prohibition.
• A small manager evidences compliance with broker duplicates or data feeds, a dated pre-clearance log, an annual certification, independent review of the compliance officer's trades, and a summary to the fund board.

Why the Policy Is Requested Before the First Allocation

Personal account dealing sits in the compliance section of every institutional due diligence questionnaire, including the AIMA illustrative questionnaire most allocators adapt. The questions are consistent, and they sit beside the same questionnaire's questions on the trade error policy: does a written policy exist, who is covered, is pre-clearance required, how are trades monitored, and what happened the last time someone breached it. The answers are then tested against documents. Answering the AIMA DDQ sets out how that section is read; an allocator wants a policy that has visibly been operated.

The weight given to the topic rises as the manager gets smaller. In a three person manager the portfolio manager is also the trader, often the compliance officer, and frequently the largest investor in the fund. The allocator's concern is not that the principal will trade ahead of the fund. It is that nobody would know if the principal did. A policy that prohibits everything proves little, because a principal whose liquid wealth is in the fund has few personal trades to report. The useful answer is a policy calibrated to the strategy, with a paper trail and a reviewer who is not reviewing their own trades. Passing operational due diligence as a new hedge fund places this policy alongside the valuation, allocation and expense policies requested in the same pack.

The Reference Frameworks: Rule 204A-1, the FCA Rules and the Cayman Board

Three bodies of rules bear on the policy, and they bind different entities. Rule 204A-1 binds an investment adviser registered or required to be registered with the SEC. The FCA rules bind a UK authorised firm. The CIMA Rule on Corporate Governance for Regulated Entities binds the governing body of the Cayman fund itself.

The scope point matters for the many emerging managers that are exempt reporting advisers. Rule 204A-1 opens with the words "if you are an investment adviser registered or required to be registered", so an adviser relying on the private fund adviser exemption in section 203(m) is outside it. Section 204A of the Act is broader: it applies to every adviser subject to section 204, which excludes only advisers exempted under section 203(b). An exempt reporting adviser still needs written procedures against misuse of material non-public information, and personal trading controls are the usual way of evidencing them.

For a UK manager the rules are framed as conflicts controls rather than as a reporting calendar. COBS 11.7.1R requires a firm to prevent a relevant person with access to inside or confidential information from entering a conflicted personal transaction. That means one barred under the Market Abuse Regulation, one that misuses confidential information, or one that conflicts with the firm's obligations to a customer. COBS 11.7.4R then requires prompt notification of any personal transaction and a record including any authorisation or prohibition, which is in substance a pre-clearance log. The FCA is consulting under CP26/28, published on 14 July 2026, on moving detailed AIFM requirements into a new sourcebook from 2028, so the references may move even if the substance does not.

Who Is Covered: Access Persons, Households and Connected Accounts

Rule 204A-1 defines an access person as a supervised person with access to non-public information about client trades or fund holdings, or who is involved in making securities recommendations. Where advising is the firm's primary business, all directors, officers and partners are presumed to be access persons. In a small manager everyone is an access person, including the operations hire who sees the blotter.

Coverage then extends outward from the individual. The rule uses the beneficial ownership standard in Exchange Act Rule 16a-1(a)(2), and the SEC's adopting release states that an access person is presumed to own securities held by immediate family members sharing the household. The FCA glossary definition of a personal transaction is more explicit. It captures trades for the relevant person, their spouse or civil partner, a dependent child or stepchild, and any relative who has shared the household for at least one year. It adds persons with close links and anyone in whose trade they hold a material interest beyond an execution fee. A manager with people in both jurisdictions should adopt the wider list.

Discretionary managed accounts

Both regimes allow a genuinely discretionary account to be carved out. Rule 204A-1(b)(3)(i) permits the code to excuse reports on accounts over which the access person had no direct or indirect influence or control. COBS 11.7.5R disapplies the section where a discretionary portfolio manager acts with no prior communication about the transaction. The carve-out is narrower than managers assume: an account the principal can direct with a phone call does not qualify. The practical control is a written confirmation from the third-party manager that the access person exercises no influence, with the statements still collected.

The manager's own investment in the fund

The principal's subscription to the fund is a disclosed alignment position governed by the offering document, which CV5 has treated in the manager's own money and redemption priority. The policy should still say how the principal's dealings in the fund are handled, because a personal redemption ahead of a drawdown that escapes every control will be noticed. Where the manager also runs managed accounts or a proprietary book, the boundary with trade allocation across the fund and SMAs should be stated in both policies.

What the Policy Contains

The contents of a workable policy are set out below, with the status of each element distinguished. Describing a blackout window as a regulatory requirement invites a follow-up question the manager will not enjoy. Describing it as a control the manager chose is persuasive.

Calibration follows the strategy. A long biased equity manager with a multi-month holding period can run a wide blackout and a long personal holding period without inconveniencing anyone. A systematic manager trading thousands of names cannot maintain a meaningful restricted list; the honest control is a prohibition on personal trading in the instruments the models trade. An event-driven manager will be asked more questions than either, because personal positions in target companies are the classic abuse.

The Reporting Calendar

The calendar is where the policy becomes evidence. Rule 204A-1 fixes the deadlines and content of each report, and managers elsewhere adopt the same cycle because allocators recognise it. The table covers a manager that runs pre-clearance and an annual certification alongside the required reports.

Two features of the calendar deserve emphasis. First, the 45 day currency window for holdings reports exists so that a brokerage statement can serve as the report; the SEC said so when it widened the window in response to comments. Build the process around statements rather than forms. Second, the duplicate confirmation route only works if the manager receives the confirmations or statements within 30 days of the quarter end. Statements that arrive late, or on request, do not satisfy the exception, and the quarterly report is then owed in full.

Review is the part of the calendar the rule requires but does not schedule. The adopting release describes a proper review: checking that pre-clearance was obtained, comparing personal trades against restricted lists, asking whether the access person trades the same names as clients, and looking for patterns over time. It also says the SEC expects most advisers to designate another individual to review the chief compliance officer's own reports. In a three person firm that reviewer is typically a second principal or the outsourced compliance provider.

Digital Asset Managers: Tokens, Wallets and the Definition Problem

A digital asset manager faces the same conflicts with two complications. The first is definitional. Rule 204A-1 covers reportable securities as defined in section 202(a)(18) of the Advisers Act, and the FCA rules refer to designated investments or financial instruments. Whether a token falls within either definition is contested in many cases, so a policy that captures only tokens the manager has concluded are securities has a shifting perimeter. The recommended practice is to define the reportable universe as every digital asset, including stablecoins, staking positions and derivatives, regardless of legal characterisation.

The second complication is evidence. There is no broker duplicate confirmation for a self-custodied wallet. The equivalent control is disclosure of every wallet address and exchange account the access person controls or has a material interest in, a confirmation that no undisclosed addresses exist, and review of on-chain activity against the fund's trading. Exchange accounts can usually produce statements or API exports on the same 30 day cycle. A personal position ahead of a fund purchase in a thinly traded token can move the price, so blackout windows in illiquid tokens need to be longer.

Token sales, early round allocations and airdrops raise the question the rule asks about IPOs and limited offerings: was an opportunity that belonged to the fund taken personally? The policy should require prior approval of participation in any token sale or private round. Dealings between the principals' own wallets and the fund fall under cross trades and principal transactions, where a weak policy produces a real problem.

Evidencing Compliance in a Two to Five Person Manager

The policy of a small manager fails in diligence for one of three reasons: nobody reviews the reports, the reviewer reviews their own trades, or the reports arrive only when the allocator asks. Each has a fix that costs little, and together they turn a document into a control.

• Route the data, not the person. Instruct every broker to send duplicate confirmations and statements directly to a compliance mailbox, or connect the accounts to a data feed.
• Keep a pre-clearance log that contains refusals. Approvals with an expiry, and refusals with a reason, show the control is live.
• Separate the reviewer from the reviewed. A second principal, an independent director or an outsourced compliance provider reviews the compliance officer's reports, and the review is signed and dated.
• Certify annually and keep the records. Rule 204-2 requires the code, violation records, acknowledgements, access person reports and the list of access persons to be kept for five years.
• Use the single access person exception honestly. Rule 204A-1(d) relieves a firm with only one access person from reporting to itself, provided it keeps the records the rule would otherwise require. The relief lapses the day a second person joins.

The fund board is the other half of the evidence. Under section 5.10 of the CIMA Rule on Corporate Governance for Regulated Entities, the governing body of a regulated fund must declare conflicts and maintain a documented conflicts of interest policy for its own members. It must also minute any conflict that arises and receive an annual written confirmation from directors and senior management. Those obligations bind the fund's directors rather than the manager's staff, a distinction CIMA's corporate governance rules for fund managers sets out in full. The connection to personal account dealing is oversight. A board that receives an annual summary of the manager's personal trading compliance, and is told promptly of a material breach, can evidence its oversight of the manager when asked. Governance as a capital-raising asset explains why that answer helps a manager win allocations rather than merely survive diligence.

On the CV5 platform the investment manager appointed to a segregated portfolio adopts and operates its own personal account dealing policy. CV5 Capital provides the regulated fund platform, the governance framework and the service provider coordination; it does not manage the strategy and it does not trade. Its contribution to this policy is the board reporting line and the diligence pack in which the policy sits.

Common Mistakes

• Describing pre-clearance, blackout windows or holding periods as regulatory requirements, when the rule leaves them to the manager.
• Defining access persons narrowly in a firm where everyone sees the blotter.
• Relying on the duplicate confirmation exception while receiving statements late or on request.
• Allowing the compliance officer to review their own trades, or leaving the review unsigned and undated.
• Carving out a family member's account as discretionary without written confirmation and statements.

Key Takeaways

• Adopt the Rule 204A-1 structure whether or not it binds you, and state in the policy which elements are required and which are the manager's own controls.
• Treat everyone in a small manager as an access person, extend coverage to household and material-interest accounts, and carve out discretionary accounts only with written confirmation and statements on file.
• Run the calendar from brokerage statements: duplicates or feeds within 30 days of quarter end, holdings reports current within 45 days, and IPO and private placement approvals with reasons recorded.
• Appoint a second reviewer for the compliance officer's own trades and have every review signed and dated.
• For digital assets, treat every token and wallet as reportable, require wallet disclosure, and pre-approve token sales and private rounds.
• Report a summary to the fund board annually and any material breach promptly, so the board's oversight of the manager is documented.

Frequently Asked Questions

Does a hedge fund manager need a personal account dealing policy?

An SEC-registered adviser must have a written code of ethics under Rule 204A-1 that includes personal securities reporting. A UK authorised firm must have arrangements under COBS 11.7 or COBS 11.7A that control personal transactions. A manager outside both regimes is not bound by either, but institutional allocators request the policy in every operational due diligence process and treat its absence as a finding. In practice every manager seeking external capital needs one.

What does Rule 204A-1 require in a code of ethics?

The rule requires a standard of business conduct reflecting the adviser's fiduciary duties, compliance with the federal securities laws, reporting and review of access persons' holdings and transactions, prompt internal reporting of violations, and written acknowledgement of the code. Access persons must submit an initial holdings report within 10 days, quarterly transaction reports within 30 days of quarter end, and an annual holdings report. They must also obtain approval before acquiring any security in an IPO or a limited offering.

Is pre-clearance of personal trades required?

Rule 204A-1 requires prior approval only for IPOs and limited offerings. General pre-clearance, restricted lists, blackout windows and holding periods are not required by the rule; the SEC's adopting release lists them as elements advisers should consider. In the United Kingdom the requirement to keep a record of any authorisation or prohibition of a personal transaction presupposes some form of approval process. Most managers adopt pre-clearance because allocators expect it.

Are family members and household accounts covered?

Under Rule 204A-1 an access person is presumed to have beneficial ownership of securities held by immediate family members sharing the same household. The FCA definition of a personal transaction extends to a spouse or civil partner, dependent children, any relative who has shared the household for at least a year, and persons with close links or a material interest in the trade. Genuinely discretionary accounts, where the person has no influence over the trades, can be excluded under both regimes.

How does a small manager evidence compliance without a compliance department?

Broker duplicate confirmations or data feeds are routed directly to the firm, and a dated pre-clearance log records refusals as well as approvals. A second principal or an outsourced compliance provider reviews the compliance officer's own trades, each person certifies annually, records are kept for at least five years, and a summary goes to the fund board each year. The evidence is that set of documents, not the policy on its own.

Do crypto and token holdings have to be reported?

Whether a token is a security or a designated investment is unsettled for many assets, so a policy tied to the legal definition has an uncertain perimeter. Recommended practice for a digital asset manager is to treat every digital asset, wallet and exchange account as reportable regardless of characterisation and to require disclosure of all wallet addresses. Participation in token sales and private rounds should be pre-approved in the same way the rule treats IPOs and limited offerings.