SBAI Standards
What SBAI Is
The Standards Board for Alternative Investments (SBAI) — formerly the Hedge Fund Standards Board (HFSB) — is an independent standards-setting body for the alternative investment industry. It publishes the SBAI Standards, a set of operational and governance best practices for alternative investment managers.
SBAI’s framework has a comply-or-explain structure: managers who are signatories commit to following the Standards or explaining publicly where they deviate and why. This approach is designed to raise the bar without mandating a single rigid approach across diverse strategies.
The SBAI Standards are primarily aimed at hedge funds, funds of funds, and similar alternative vehicles — though some principles apply more broadly.
What the Standards Cover
The SBAI Standards address several dimensions of alternative investment manager operations and governance:
Disclosure and transparency — What managers should disclose to investors: risk exposures, leverage, liquidity, valuation policies, fees, and material conflicts of interest. The Standards set a baseline for what institutional investors should expect to receive.
Valuation — Guidance on valuation governance including the separation of the investment team from the valuation process, use of independent price verification, and policies for hard-to-value instruments. Directly relevant to the governance of the valuation process described in valuation risk.
Risk management — Governance of risk monitoring, leverage limits, liquidity management, and stress testing. The Standards describe what a sound risk management framework looks like for a hedge fund manager.
Operational infrastructure — Back-office processes, fund administration, technology, business continuity, and cybersecurity. This overlaps with the operational risk framework.
Fund governance — Board structure, independent oversight, and investor protections for hedge fund vehicles.
Liquidity management — Guidance on how managers should match portfolio liquidity with investor liquidity terms — the mismatch risk discussed in liquidity risk and open-ended vs closed-ended funds.
Leverage — Guidance on leverage measurement, monitoring, and disclosure — relevant to leverage risk.
Note: The SBAI Standards are publicly available on the SBAI website. This source note is based on publicly available summary descriptions. The current standards document should be consulted at the source URL for specific recommendations and their current version.
Why It Matters
Hedge fund due diligence: The SBAI Standards provide a governance and operational reference framework specifically designed for hedge funds. When conducting operational due diligence on a hedge fund, the Standards provide a checklist of what good practice looks like.
Valuation governance: The SBAI’s guidance on separating investment and valuation functions, and using independent price verification for illiquid positions, directly supports the valuation controls described in valuation risk.
Operational risk: The Standards’ operational infrastructure and governance sections map closely onto the operational risk categories in operational risk — providing a reference for what controls should look like in a well-run alternative fund.
Liquidity and leverage: For liquidity risk and leverage risk, the Standards describe how managers should measure, monitor, and disclose these risks — useful context when reviewing a manager’s risk disclosures.
Open-ended funds: The SBAI’s liquidity guidance is particularly relevant for open-ended hedge fund structures, where the mismatch between investor redemption rights and portfolio liquidity is a standing risk. See open-ended vs closed-ended funds.
Relevant Local Files
- Hedge Funds
- Operational Risk
- Valuation Risk
- Liquidity Risk
- Leverage Risk
- Open-Ended vs Closed-Ended Funds
Source Verification Note
This source note is based on publicly available descriptions of the SBAI Standards framework. The full standards document is publicly available on the SBAI website and should be consulted for specific requirements, the comply-or-explain process, and any updates since the date of this note.