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Hedge Fund Analysis: An In-Depth Guide to Evaluating Return Potential and Assessing Risks

Book Description

A detailed, step-by-step book covering the entire hedge fund evaluation process

Investing in hedge funds is different from investing in other asset classes. There is much less publicly available information about hedge funds performance than there is about mutual funds or individual stocks. Consequently, investing in this class requires more sophisticated investment knowledge, greater due diligence, and, in many cases, a better-developed ability to evaluate investment managers.

Hedge Fund Analysis provides a broad framework of how to approach this endeavor, from initial screening to analytical techniques, interviewing skills, and legal and contract negotiations. Along the way, it demonstrates a variety of mechanisms for monitoring and tracking hedge funds and the underlying hedge fund portfolios—explaining each stage of the process in minute detail and providing specific examples which fully explain the opportunities and challenges you'll face each step of the way.

  • Provides a detailed look at how to source hedge funds, screen through them, and rank their strengths and weaknesses

  • Lays out a thorough process for evaluating funds, from initial interviews to performance analysis to onsite meetings

  • Reveals what questions to ask by strategy in order to understand the underlying risk factors associated with each

  • Highlights non-investment analysis, including operational due diligence and risk management, as integral elements in the process

Written by a financial professional with over twenty years of experience conducting investment manager due diligence, this book will put you in a position to make more informed decisions when investing in hedge funds.

Table of Contents

  1. Cover
  2. Series Page
  3. Title Page
  4. Copyright
  5. Dedication
  6. Introduction
    1. My Objective in Writing This Book
    2. The Structure of the Book
    3. Contact
  7. Part One: Background
    1. Chapter 1: Hedge Fund History
      1. So Who Invented the Hedge Fund?
      2. The Samurai
      3. The Academic
      4. The Legend
      5. The Innovator
    2. Chapter 2: Hedge Fund Asset Class
      1. Definition
      2. Hedge Fund Structure
      3. Hedge Fund Strategies
      4. Advantages of Allocating to Hedge Funds
      5. Hedge Fund Size and Age Impacts Performance
  8. Part Two: Hedge Fund Due Diligence
    1. Chapter 3: Due Diligence Process
      1. Key Areas of Focus within Each Component of Due Diligence
      2. The Due Diligence Process Highlighted in This Book
      3. Putting It All Together
      4. Some Initial Thoughts
    2. Chapter 4: Initial Data Collection
      1. Data Collection
      2. Due Diligence Questionnaire (DDQ)
      3. Fictional Capital Management
      4. Other Materials
      5. Further Analysis
      6. 13F Analysis
      7. Hedge Fund Journal
    3. Chapter 5: Initial Interview
      1. Initial Call or Meeting
      2. Phone Interviews
      3. Meeting Notes
    4. Chapter 6: Quantitative Analysis
      1. Performance Measures
      2. Absolute Return Measures
      3. Absolute Risk Measures
      4. Regression-Based Statistics
      5. Peer Group Analysis
    5. Chapter 7: Portfolio Analysis
      1. Attribution Analysis
      2. Fundamental Analysis
      3. Evaluating Portfolio Data
    6. Chapter 8: Onsite Interviews
      1. Onsite Meeting Strategies
      2. One-on-One Meetings
      3. Meeting with More Than One Person
      4. Different Perspectives
      5. Meeting Notes
      6. Onsite Interviews at Fictional Capital Management (FCM)
    7. Chapter 9: Operational Due Diligence
      1. Case Study: Bayou Fund
      2. Definition
      3. Importance of Operational Due Diligence
      4. Categorization of Operational Due Diligence
      5. Interview with FCM Operational Staff
    8. Chapter 10: Risk Due Diligence
      1. Graphical Depiction of Hedge Fund Risks
      2. Risk Due Diligence
      3. Factor Decomposition Analysis
      4. Interview with FCM Risk Manager
    9. Chapter 11: Reference and Background Checks
      1. Onlist and Offlist References
      2. Internet and Social Media
      3. Contacting References
      4. Problematic References
      5. Whose References Should You Check?
      6. How Many Reference Calls Are Enough?
      7. Background Checks
      8. Summary of Reference Calls for FCM
    10. Chapter 12: Hedge Fund Scoring Model and Decision Making
      1. Hedge Fund Scoring Model
      2. Putting It All Together
  9. About the Author
    1. Frank J. Travers, CFA
  10. Index