Managing Hedge Fund Managers: Quantitative and Qualitative Performance Measures

CHAPTER 9

Navigating Buyers’ Remorse

It’s Always Darkest Before It Goes Completely Black

 

 

We have just spent several chapters walking through a due diligence process and then portfolio construction in order to arrive at a rational method for investing in hedge funds. After the reality has set in that you have allocated money to a hedge fund, it is not unusual that some doubts begin to slip into your mind. Did I make the right decision? Is there something I missed in reviewing this fund? Have I lost my mind entirely by investing in a hedge fund?

It is not unusual, if the fund doesn’t have a lock-up period, to see investors redeem after a few months that were rocky or did not meet expectations. However, if you have performed a rigorous analysis of the fund and are still comfortable with the results of that analysis, redeeming is the wrong course of action. How, though, you may ask, can you get to a more comfortable level with your analysis?

One exercise I have found quite useful is to review past investments and, even more importantly, other funds that may have imploded. There are many things you can learn from hindsight. Reviewing past mistakes can help raise questions, provide guideposts, and give insight into what you should be on guard against in the new fund you are considering. In previous chapters we have made mention of some high profile implosions such as Long Term Capital Management and Amaranth. Now we will list some other funds that have ceased to be, not from investment ...