Fund managers are required not only to have policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940 but also to follow their policies and procedures in the operation of their businesses. The SEC takes a dim view of managers that fail to comply with their own policies and procedures, especially those for areas vulnerable to abuse such as valuation. There may be circumstances, however, that make it difficult – if not impossible – for a manager to follow its usual valuation procedures. Unless the manager’s policy has a contingency plan for when the usual valuation procedure cannot be followed, the manager must proceed cautiously – and then fill that gap in its policies. This second article in a two-part series spells out the steps that a manager without a specified contingency plan in its valuation policy should take if it must deviate from its usual valuation procedures due to a crisis. The first article explained why proper valuation of a hedge fund’s assets is so important – especially in the eyes of the SEC – discussed circumstances that may make valuing a fund’s assets challenging and noted the importance of establishing fair market value. See “Three Approaches to Valuing Fund Assets and How Auditors Review Those Valuations” (May 11, 2017); and “Three Pillars of an Effective Hedge Fund Valuation Process” (Jun. 19, 2014). To shed light on other valuation-related issues, on November 18, 2020, at 10:00 am EST, the Hedge Fund Law Report will be hosting a webinar, entitled “How to Handle Level 2 and 3 Asset Valuation Challenges." The program will be moderated by Robin L. Barton, Associate Editor of the HFLR, and will feature Benjamin Kozinn, partner in Lowenstein Sandler’s investment management practice group, and Hugh Nelson, director in Houlihan Lokey's portfolio valuation and fund advisory business. To register for the program, click here.