ICVM 558

Formulário de Referência – 15B (pt. 1)

Formulário de Referência – 15B (pt. 2)

HCMLP Compliance Manual

The company has adopted valuation guidelines intended to provide for the fair and appropriate valuation of investments held in client accounts:

  • All securities must be valued in a fair and equitable manner
  • Securities traded on an exchange will generally be valued at the last reported sale price
  • Loans are generally valued using independent market quotations
  • Assets for which quotations are not available or unreliable are generally fair valued
    • Fair values should take into account all material event and developments

Highland maintains a policy of strict compliance with the highest standards of ethical business conduct and the provisions of applicable federal securities laws, including rules and regulations promulgated by the SEC, and has adopted policies and procedures described in its Code of Ethics. The Code of Ethics applies to each employee of Highland. It is designed to ensure compliance with legal requirements of Highland’s standard of business conduct. Highland is expected to comply with all applicable federal and state laws and regulations. Highland employees are expected to adhere to the highest standards of ethical conduct and maintain confidentiality of all information obtained in the course of their employment and bring any risk issues, violations, or potential violations to the attention of the Chief Compliance Officer.
Highland also maintains its electronic records and other records subject to retention and back-up requirements via an independent, 3rd party service provider.
Over the past 20+ years Highland established a culture focused on control and risk management across the firm. Below are several of the key risk management/controls-based processes in place:

  • Third-party service providers, including custodians and administrators
  • Written pricing policies and procedures
  • Reconciliations and cash management controls
  • Electronic records retention
  • Firm Wide Restricted List

The firm’s policy is to require that all investments be allocated in a manner that treats each fund fairly and equitably over time. Allocations are not based upon asset performance, Applicable fee structures or the Manager’s beneficial or other interest in the fund. Our policy is to avoid any action that could result in an unfair or inequitable disadvantage to any fund or unfair or inequitable advantage to any proprietary account or any fund that is charged performance-based fees. To further mitigate any actual or perceived conflicts of interest, allocation to principal accounts that do not include third party investors may only be made after all other fund orders for the security have been filled. Allocations are fair and equitable over time, but resulting returns may vary.
Risk management within our portfolios is integrated into all levels of the investment process, from due diligence to portfolio construction and management to ongoing monitoring. Our process addresses factors including credit risk, liquidity risk and volatility risk. We conduct extensive position and portfolio monitoring activities on a daily basis. Portfolio risk is reviewed using internally generated daily, weekly and monthly reports which measure transaction compliance including metrics such as portfolio concentrations or required test scores, as well as compliance with evolving internal positioning targets. Individual position risk is monitored in a number of ways, including our extensive proprietary intranet system, which pulls together data from our various data providers to provide a comprehensive portfolio/risk management system. The system allows our team to monitor metrics at any level of aggregation (instrument, issuer, portfolio, fund and across the platform). Additionally, the system is designed to be scalable with flexibility to enable future data inputs and reporting requirements.
In those circumstances where more than one broker-dealer is able to satisfy our obligation to obtain best execution, Highland may place a trade order on behalf of client accounts with a broker-dealer that charges more than the lowest available commission cost or price. Highland may do this in exchange for certain brokerage and research services provided either directly from the broker-dealer or through a third party (“Soft Dollar Arrangements”), provided that each of the following is met:

  • Highland determines:
    • The research or brokerage product or service constitutes an eligible brokerage or research service;
    • The product or service provides lawful and appropriate assistance in the performance of Highland’s investment decision making responsibilities; and
    • In good faith the amount of client commissions paid is reasonable in light of the value of the products or services provided.
  • The brokerage or research is “provided by” a broker-dealer who participates in effecting the trade that generates the commission. Highland may not incur a direct obligation for research with a third party vendor and then arrange to have a broker-dealer pay for that research in exchange for brokerage commissions.
  • Highland may only generate soft dollars with commissions in agency transactions. Highland may not use dealer markups in principal transactions to generate soft dollars. In addition, a trade for a fixed income security or over-the-counter (“OTC”) security may be done on an agency basis only if the trader determines that it would not result in a broker-dealer unnecessarily being inserted between Highland and the market for that security.
  • No soft dollars are generated on accounts for which:
    • Investment discretion resides with the client (i.e. non-discretionary accounts);
    • Client mandates restrict or prohibit the generation of soft dollar commissions;
    • The client has a directed brokerage arrangement.
  • The brokerage trade placed is for “securities” transactions (and not, for example, futures transactions).


Trade Allocation

It is Highland’s policy to allocate investment opportunities fairly and equitably over time. All investments are consistent with the client’s stated investment objectives and disclosures. Investment managers must obtain the best execution under the circumstances and execute securities transactions for clients in such a manner that the client’s total cost or proceeds in each transaction is the most favorable under the circumstances. The following should be considered in making an allocation determination:

  • Whether the risk-return profile of the proposed investment is consistent with the account’s objectives and program;
  • The potential for the proposed investment to create an imbalance in the account’s portfolio liquidity requirements of the account;
  • Tax consequences;
  • Regulatory and other restrictions; and
  • Any need to re-size risk.

Employee Trading Policy

To mitigate any conflicts of interest in employee trading, all employees are subject to a personal trading policy. Subject to limited exceptions with the Chief Compliance Officer’s approval, employees may not trade in securities of an issuer in which any portfolio or fund managed by the Firm has an interest in any part of the capital structure. Employee brokerage accounts are monitored electronically and employees make quarterly attestations as to trades executed and positions held. Employees must pre-clear all transactions in reportable securities.

Employees are prohibited from trading while in possession of material, non-public information.