Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Discussion Questions and Problems

1. What are the three main areas of investigation that should be part of investors’ due diligence process?

2. What is meant by taking a checklist approach to the due diligence process?

3. What are the qualitative aspects of performing due diligence?

4. What is meant by a 360-degree approach to due diligence?

5. How have scandals (name two) impacted the due diligence process?

6. What are some of the sources of hedge fund–related scandals, according to the FBI, and how can investors perform their due diligence to catch them?

7. What were the scope and findings of the “Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management” report of the President's Working Group on Financial Markets, April 1999?

8. What were the scope and findings of “Implications of the Growth of Hedge Funds,” a staff report to the United States Securities and Exchange Commission issued September 2003?

9. What were the scope and findings of “Best Practices for the Hedge Fund Industry,” a report to the President's Working Committee on Financial Regulations by the Asset Management Subcommittee issued January 2009?

10. Imagine you are the CIO of a large pool of assets related to an endowment, pension, or family office. What priorities would you set and what instruction would you give to a new analyst on your team performing their first hedge fund review?