I have written about this topic in the past: that is, how, in most cases, hedge funds should find compliance with the Global Investment Performance Standards (GIPS(R)) pretty simple. However, as a result of an email conversation with The Spaulding Group's first Africa-based verification client, a few additional items were identified that make compliance straightforward.
Our client was concerned about the justification for certain policies and procedures which simply won't apply. For example, the timing of accounts going in and out of the composite. Since the composites will consist of partnerships, and since GIPS isn't concerned with partners, per se, (because it's the partnership that constitutes the portfolio, not the underlying owners; just as with mutual funds) this policy will be non applicable, other than for the timing of the partnership going into the composite.
What about significant cash flows? First, there is no need for a policy, since this is an option. But it's highly unlikely that the hedge fund would adopt such a policy, so it's simply "n/a."
How about rules for declaring accounts non-discretionary? Since the partnerships are constructed by the firm, they would all be discretionary. Granted, there may be cases when a hedge fund creates a separate portfolio for a large client, who wishes to be managed in a manner similar to the partnership, but without being in the partnership; or, if they want a "twist" on the strategy, and so rules may, at some point, apply. But initially it's fine for the firm to simply state that they have no restrictions.
Because of the inherent complexities of hedge funds, there often seems to be the belief that compliance with GIPS will be quite a challenge; we believe that it shouldn't be, and recently ran an advertisement addressing this: