Managing Hedge Fund Managers : Quantitative and Qualitative Performance Measures

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2009-03-30
  • Publisher: Wiley
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Invaluable insight into measuring the performance of today's hedge fund manager More and more institutional funds and high'net'worth assets are finding their way to hedge funds. This book provides the quantitative and qualitative measures and analysis that investment managers, investment advisors, and fund of fund managers need to allocate and monitor their client's assets properly. It addresses important topics such as Modern Portfolio Theory (MPT) and Post Modern Portfolio Theory (PMPT), choosing managers, watching performance, and researching alternate asset classes. Author Edward Stavetski also includes an appendix showing detailed case studies of hedge funds, and gives readers a road map to monitor their investments. Edward J. Stavetski (Wayne, PA) is Director of Investment Oversight for Wilmington Family Office, serving ultra high'net'worth families in strategic asset allocation, traditional and alternative investment manager selection, and oversight.

Author Biography

EDWARD J. STAVETSKI is Director of Investment Oversight and Chair of the Investment Committee for the Wilmington Family Office. He is an active member of the CFA Institute and served as a board member and past president of the CFA Society of Philadelphia, Inc. Stavetski was a regular contributor to TheStreet.com, Investopedia, and RealMoney. He received his bachelor of arts in chemistry from West Virginia University and has held NASD Series 7, 63, and 65 licenses.

Table of Contents

Prefacep. xi
Highlights of the Bookp. xii
Acknowledgmentsp. xiii
Introduction: The Art and Science of Hedge Fund Investing-Are You Precisely Wrong or Approximately Correct?p. 1
The Explosion of Hedge Fundsp. 1
What Are Hedge Funds?p. 5
Finding a Comfort Zonep. 7
A Look beneath the (Book) Coversp. 8
As You Beginp. 9
Madoffp. 10
Asset Allocation and Fiduciary Dutyp. 11
Determinants of Portfolio Performancep. 12
Why Alternate Investments?p. 13
A Closer Look at Hedge Fund Structuresp. 16
The Rise of Socially Responsible Investingp. 20
Fiduciary Responsibilityp. 20
Where Do I Start?p. 24
Large versus Small Fundsp. 27
Research Confirms Small Fund Advantagep. 29
Performance of New Small Fundsp. 34
Attrition Ratesp. 36
Drivers of Outperformancep. 37
Invested Interestsp. 37
Aligned Interestsp. 38
Point of Diminishing Returnsp. 39
Master of Trend Line Analysisp. 40
The Search for an Honest Manp. 41
Prime Brokersp. 43
Conferences and Industry Eventsp. 45
Industry Publicationsp. 46
Incubators and Platformsp. 47
Industry Web Sites and Databasesp. 48
Building Your Own Databasep. 53
Unconventional Sourcesp. 53
Six Steps to Kevin Baconp. 54
Sizing up the Flockp. 56
What's in the DDQ?p. 57
Summaryp. 60
Performance Analysisp. 61
The First Step: Understand What Is Being Measuredp. 63
Two Sides to Hedge Fund Performance: Long and Shortp. 65
Performance Standardsp. 66
Check the Entryp. 67
Finding a Benchmarkp. 68
Peer Analysisp. 71
Confusion from the Best and the Brightest?p. 73
A Practitioner's Viewp. 74
Examine the Badp. 77
Examine the Goodp. 78
Expect the Improbablep. 79
I Surrenderp. 79
Risk in Hedge Fundsp. 81
Major Risk Categoriesp. 84
Liquidity Riskp. 85
High Watermark Riskp. 87
Concentration Riskp. 89
Operational Riskp. 89
Liquidity Mismatch Riskp. 90
Transparency Riskp. 90
Risk Processp. 91
Leverage Riskp. 91
Short Selling Riskp. 92
Reputation Riskp. 93
Submerged Riskp. 94
Counterparty Riskp. 94
Market Riskp. 94
Credit Riskp. 95
Model Riskp. 96
Complexity Riskp. 98
Key Person Riskp. 99
Sensitivity to Assumptions Riskp. 99
NAV Instability Riskp. 99
Derivatives Riskp. 100
Summaryp. 101
You Only Find Out Who Is Swimming Naked When the Tide Goes Outp. 103
Filling Out the DDQp. 103
Form ADV Part IIp. 109
Fund Brochures and Documentsp. 110
Planning the On-Site Visitp. 111
Summaryp. 112
Let the Games Beginp. 115
The Processp. 115
Examining the Organizationp. 119
Preparing for the On-Site Visitp. 120
Preparing the Final Evaluationp. 126
In Conclusionp. 137
Getting Ready Is the Secret of Successp. 139
Top-Down Strategy Analysisp. 140
Bottom-Up Manager Analysisp. 141
Test or Model the Portfoliop. 142
Portfolio Optimizationp. 147
Summaryp. 153
Navigating Buyers' Remorsep. 155
Long Term Capital Management: Poor Diversification and High Leverage Are a Dangerous Combinationp. 156
Bayou Group, LLC: Due Diligence Is a Mustp. 158
Wood River Capital Management: A Lack of Experience and Auditingp. 160
MotherRock: The Liquidity Squeeze in a Small Market Will End Badly When Volatility Increasesp. 162
Amaranth: Liquidity and Concentrated Portfolios Can Drag a Fund Down as the Trend of Any Trade Eventually Reversesp. 165
Recent Events: Ospraie Fundp. 168
Your Final Examp. 169
Applying Your Educationp. 170
The Importance of Second Actsp. 171
Monitoring Your Flockp. 173
Everyone's Favorite Metric: Performancep. 174
Portfolio Exposuresp. 175
Performance Trendsp. 179
Peer Group Analysisp. 181
Strategy Reviewsp. 182
Fund Size and Performance Impactp. 183
Management and Personnel Reviewsp. 185
Third-Party Vendorsp. 186
Regulatory and Legal Riskp. 188
Business Continuity Riskp. 188
A Final Word on Monitoringp. 189
Sample Investment Policy Statementp. 191
Statement of Investment Objectivesp. 191
Asset Allocation and Rebalancingp. 192
Guidelines for the Selection of Fixed-Income Securitiesp. 195
Guidelines for Selection of Equity Investmentsp. 196
Standards of Performancep. 196
Selection of Managersp. 199
Responsibilities of Managersp. 200
Sample ADV Part II with ADV Schedule Fp. 203
Hedge Fund Manager Due Diligence Questionnairep. 219
Backgroundp. 219
Investment Process, Strategy, and Philosophyp. 221
Business Plansp. 221
Manager Selection and Researchp. 222
Manager Monitoring and Risk Managementp. 222
Performance and Feesp. 222
Compliance and Client Reportingp. 223
Personnelp. 223
Operations and Administrationp. 223
Taxesp. 224
Performance (See Appendix 6)p. 224
Attachmentsp. 226
U.S. Equity Long/Short Managersp. 229
Organizationp. 229
Investment Professionals (Product Specific)p. 230
Investment Philosophy and Processp. 231
Trading Process and Systemsp. 232
Performancep. 233
Composite/Product Informationp. 244
Referencesp. 248
Bibliographyp. 249
Indexp. 253
Table of Contents provided by Ingram. All Rights Reserved.

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