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Managing Hedge Fund Managers: Quantitative and Qualitative Performance Measures

Book Description

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.

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Dedication
  4. Preface
    1. HIGHLIGHTS OF THE BOOK
  5. Acknowledgements
  6. Introduction
    1. THE EXPLOSION OF HEDGE FUNDS
    2. WHAT ARE HEDGE FUNDS?
    3. FINDING A COMFORT ZONE
    4. A LOOK BENEATH THE (BOOK) COVERS
    5. AS YOU BEGIN
    6. MADOFF
  7. CHAPTER 1 - Asset Allocation and Fiduciary Duty
    1. DETERMINANTS OF PORTFOLIO PERFORMANCE
    2. WHY ALTERNATE INVESTMENTS?
    3. A CLOSER LOOK AT HEDGE FUND STRUCTURES
    4. THE RISE OF SOCIALLY RESPONSIBLE INVESTING
    5. FIDUCIARY RESPONSIBILITY
    6. WHERE DO I START?
  8. CHAPTER 2 - Large versus Small Funds
    1. RESEARCH CONFIRMS SMALL FUND ADVANTAGE
    2. PERFORMANCE OF NEW SMALL FUNDS
    3. ATTRITION RATES
    4. DRIVERS OF OUTPERFORMANCE
    5. INVESTED INTERESTS
    6. ALIGNED INTERESTS
    7. POINT OF DIMINISHING RETURNS
    8. MASTER OF TREND LINE ANALYSIS
  9. CHAPTER 3 - The Search for an Honest Man Finding Your Manager
    1. PRIME BROKERS
    2. CONFERENCES AND INDUSTRY EVENTS
    3. INDUSTRY PUBLICATIONS
    4. INCUBATORS AND PLATFORMS
    5. INDUSTRY WEB SITES AND DATABASES
    6. BUILDING YOUR OWN DATABASE
    7. UNCONVENTIONAL SOURCES
    8. SIX STEPS TO KEVIN BACON
    9. SIZING UP THE FLOCK
    10. WHAT’S IN THE DDQ?
    11. SUMMARY
  10. CHAPTER 4 - Performance Analysis
    1. THE FIRST STEP: UNDERSTAND WHAT IS BEING MEASURED
    2. TWO SIDES TO HEDGE FUND PERFORMANCE: LONG AND SHORT
    3. PERFORMANCE STANDARDS
    4. CHECK THE ENTRY
    5. FINDING A BENCHMARK
    6. PEER ANALYSIS
    7. CONFUSION FROM THE BEST AND THE BRIGHTEST?
    8. APRACTITIONER’S VIEW
    9. EXAMINE THE BAD
    10. EXAMINE THE GOOD
    11. EXPECT THE IMPROBABLE
    12. I SURRENDER
  11. CHAPTER 5 - Risk in Hedge Funds
    1. MAJOR RISK CATEGORIES
    2. LIQUIDITY RISK
    3. HIGH WATERMARK RISK
    4. CONCENTRATION RISK
    5. OPERATIONAL RISK
    6. LIQUIDITY MISMATCH RISK
    7. TRANSPARENCY RISK
    8. RISK PROCESS
    9. LEVERAGE RISK
    10. SHORT SELLING RISK
    11. REPUTATION RISK
    12. SUBMERGED RISK
    13. COUNTERPARTY RISK
    14. MARKET RISK
    15. CREDIT RISK
    16. MODEL RISK
    17. COMPLEXITY RISK
    18. KEY PERSON RISK
    19. SENSITIVITY TO ASSUMPTIONS RISK
    20. NAV INSTABILITY RISK
    21. DERIVATIVES RISK
    22. SUMMARY
  12. CHAPTER 6 - You Only Find Out Who Is Swimming Naked When the Tide Goes Out
    1. FILLING OUT THE DDQ
    2. FORM ADV PART II
    3. FUND BROCHURES AND DOCUMENTS
    4. PLANNING THE ON-SITE VISIT
    5. SUMMARY
  13. CHAPTER 7 - Let the Games Begin
    1. THE PROCESS
    2. EXAMINING THE ORGANIZATION
    3. PREPARING FOR THE ON-SITE VISIT
    4. PREPARING THE FINAL EVALUATION
    5. IN CONCLUSION
  14. CHAPTER 8 - Getting Ready Is the Secret of Success
    1. TOP-DOWN STRATEGY ANALYSIS
    2. BOTTOM-UP MANAGER ANALYSIS
    3. TEST OR MODEL THE PORTFOLIO
    4. PORTFOLIO OPTIMIZATION
    5. SUMMARY
  15. CHAPTER 9 - Navigating Buyers’ Remorse
    1. LONG TERM CAPITAL MANAGEMENT: POOR DIVERSIFICATION AND HIGH LEVERAGE ARE A ...
    2. BAYOU GROUP, LLC: DUE DILIGENCE IS A MUST
    3. WOOD RIVER CAPITAL MANAGEMENT: A LACK OF EXPERIENCE AND AUDITING
    4. MOTHERROCK: THE LIQUIDITY SQUEEZE IN A SMALL MARKET WILL END BADLY WHEN ...
    5. AMARANTH: LIQUIDITY AND CONCENTRATED PORTFOLIOS CAN DRAG A FUND DOWN AS THE ...
    6. RECENT EVENTS: OSPRAIE FUND
    7. YOUR FINAL EXAM
    8. APPLYING YOUR EDUCATION
    9. THE IMPORTANCE OF SECOND ACTS
  16. CHAPTER 10 - Monitoring Your Flock I Walk in the Valley of Darkness, I Fear No Evil
    1. EVERYONE’S FAVORITE METRIC: PERFORMANCE
    2. PORTFOLIO EXPOSURES
    3. PERFORMANCE TRENDS
    4. PEER GROUP ANALYSIS
    5. STRATEGY REVIEWS
    6. FUND SIZE AND PERFORMANCE IMPACT
    7. MANAGEMENT AND PERSONNEL REVIEWS
    8. THIRD-PARTY VENDORS
    9. REGULATORY AND LEGAL RISK
    10. BUSINESS CONTINUITY RISK
    11. A FINAL WORD ON MONITORING
  17. APPENDIX A - Sample Investment Policy Statement
  18. APPENDIX B - Sample ADV Part II with ADV Schedule F
  19. APPENDIX C - Hedge Fund Manager Due Diligence Questionnaire
  20. APPENDIX D - U.S. Equity Long/Short Managers
  21. Bibliography
  22. Index