The Future of Hedge Fund Investing: A Regulatory and Structural Solution for a Fallen Industry

The Future of Hedge Fund Investing: A Regulatory and Structural Solution for a Fallen Industry

by MONTY AGARWAL
Released October 2009
Publisher(s): Wiley
ISBN: 9780470537442

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Book description

A detailed look at how to fix the hedge fund industry

The Future of Hedge Fund Investing spells out in refreshingly stark terms exactly how the industry let down its clients, and the changes needed to restore their confidence. Written by Monty Agarwal, the founder of Predator Capital Management, this insider's guide gives a full assessment of the business, including the advantages of hedge funds, their pitfalls, and, most importantly, how to avoid these missteps.

The book begins by describing the hedge fund universe, which includes funds and fund of funds; fund regulators, major investors, and middlemen; and fee structures, incentives, and typical investment strategies. From here, Agarwal explores possible solutions and fixes as he touches upon several important issues within this field.

  • Examines hedge funds' role in the 2008 market crisis and what can be learned from it

  • Discusses the structural changes for fund of funds in areas including trading, diversification, risk management, and due diligence

  • Provides guidance for investors to follow when interviewing hedge fund managers

Table of contents

  1. Title Page
  2. Copyright Page
  3. Dedication
  4. Foreword
  5. Introduction
    1. FUNDS OF HEDGE FUNDS: TIME FOR CHANGE IS NOW
  6. CHAPTER 1 - Recent Hedge Fund Scandals
    1. PALM BEACH, FLORIDA
    2. KL FINANCIAL, MARCH 2005
    3. AMARANTH ADVISORS, SEPTEMBER 2006
    4. BERNIE MADOFF, DECEMBER 2008
    5. LESSON 1: RELATIONSHIPS DO NOT TRUMP DUE DILIGENCE
    6. LESSON 2: WHEN INVESTING IN HEDGE FUNDS, HIRE EXPERTS
    7. LESSON 3: “WE DID NOT KNOW WHAT WE WERE INVESTING IN” IS NOT AN EXCUSE
    8. CONCLUSION: SO CALLED EXPERTS, FUND OF FUNDS, HAVE FAILED
  7. CHAPTER 2 - The Players
    1. FLOW OF CAPITAL IN THE HEDGE FUND INDUSTRY
    2. CONCLUSION
  8. CHAPTER 3 - Hedge Funds
    1. INCENTIVES AND THE DISINCENTIVES OF THE HEDGE FUND FEE STRUCTURE
    2. EDUCATION OF THE FUTURE HEDGE FUND MANAGER
    3. TRAINING GROUNDS OF THE HEDGE FUND MANAGER
    4. THE CHART READERS
    5. THE QUANTS
    6. THE GLOBAL MACRO TRADER
    7. FROM A CATERPILLAR TO A BUTTERFLY
    8. ANDREW LAHDE’S GOODBYE LETTER
  9. CHAPTER 4 - Hedge Fund Strategies
    1. LONG-SHORT EQUITY
    2. EVENT DRIVEN
    3. GLOBAL MACRO
    4. FIXED-INCOME ARBITRAGE
    5. RELATIVE VALUE ARBITRAGE
    6. EFFECT OF 2008 ON THESE STRATEGIES AND LOOKING FORWARD
  10. CHAPTER 5 - Hedge Fund Service Providers and Regulators
    1. BUILDING A BUSINESS
    2. CONCLUSION
  11. CHAPTER 6 - Funds of Hedge Funds
    1. PHILOSOPHY AND SERVICES
    2. FAILURE OF FIDUCIARY DUTIES
    3. STATISTICAL BUCKETING BY STRATEGY
    4. DUE DILIGENCE AND THE ANALYST
    5. WHAT’S IN A NAME?
    6. THE AIMA DUE DILIGENCE QUESTIONNAIRE
    7. WHERE ARE THE EXPERIENCED PROFESSIONALS?
    8. THE (LACK OF) ONGOING DUE DILIGENCE
    9. MULTI-STRATEGY HEDGE FUNDS
  12. CHAPTER 7 - An Expert Failure
    1. USELESSNESS OF HISTORICAL DATA CRUNCHING
    2. QUEST FOR STEADY RETURNS: SYSTEMATIC DESTRUCTION OF ALPHA
    3. BUCKETING BY ASSET CLASS AND GEOGRAPHY: A FLAWED CONCEPT
    4. ALPHA VERSUS BETA: THE TRADER GENERATES ALPHA, NOT THE STRATEGY
    5. 10 PERCENT TO 20 PERCENT ALLOCATION RULE
    6. MANAGING A HEDGE FUND MANAGER
    7. BOOKRUNNER VERSUS A PROPRIETARY TRADER
    8. SO-CALLED HEDGE FUND EXPERTS
    9. HEDGE FUNDS: HOUSE OF SECOND OR THIRD CHANCES?
    10. WHY DOES A LOSING HEDGE FUND MANAGER SHUT DOWN HIS FUND?
    11. WHY DOES THE INDUSTRY KEEP FUNDING A FAILED TRADER?
    12. CONCLUSION
  13. CHAPTER 8 - Remodeling the Funds of Hedge Funds
    1. FIVE INVIOLABLE COMMANDMENTS
    2. TRADERS MANAGING TRADING INVESTMENTS
    3. DIFFERENTIATE BETWEEN ALPHA AND BETA STRATEGIES
    4. BUCKETING BASED ON TRADER METHODOLOGY
    5. APPROPRIATE RISK TEMPLATE BY STRATEGY
    6. MANAGER STOP LOSS AND LINKED REDEMPTIONS
    7. NOT 10 PERCENT, MAJORITY EVERY TIME
    8. ONGOING DUE DILIGENCE: IT IS NOT JUST ABOUT RETURNS
  14. CHAPTER 9 - Correct Risk Due Diligence
    1. POSITION CONCENTRATION, SO WHAT?
    2. MANAGEMENT OF STOP LOSS LIMITS: THE BE-ALL AND END-ALL
    3. OVER-LEVERAGE AND ILLIQUIDITY
    4. HEDGING: WILL THE MARKET LET YOU SHORT?
  15. CHAPTER 10 - Interviewing a Hedge Fund Manager
    1. RELATIONSHIP
    2. STRATEGY-RELATED QUESTIONS
    3. WHAT QUALIFIES YOU TO EXECUTE THIS STRATEGY?
    4. WORK EXPERIENCE
    5. RISK APPETITE
    6. THINKER, ADAPTER, ENTREPRENEUR?
    7. DISCIPLINE AND CHARACTER
  16. CHAPTER 11 - Hedge Fund Industry’s Role in 2008 Market Crisis
    1. BORROWERS, BANKERS, AND INVESTORS
    2. DON’T BLAME THE PRODUCTS, BLAME THE USERS
    3. FAILED DUE DILIGENCE ON PART OF INVESTORS
    4. FAILURE OF FIDUCIARY RESPONSIBILITIES BY BROKERS AND LIES BY BORROWERS
    5. NO HEDGE FUND HAS BEEN BAILED OUT
    6. SYSTEMIC RISK AND DERIVATIVE TRANSACTIONS
    7. REGULATING HEDGE FUNDS
  17. CHAPTER 12 - The End
    1. ROBERT ALLEN STANFORD’S PONZI SCHEME
    2. HEDGE FUND INDUSTRY OFFERS MORE DISCLOSURE
    3. SIMILAR PROBLEMS WITH THE PENSION FUNDS, ENDOWMENTS, SWFs
  18. Bibliography
  19. Index

Product information

  • Title: The Future of Hedge Fund Investing: A Regulatory and Structural Solution for a Fallen Industry
  • Author(s): MONTY AGARWAL
  • Release date: October 2009
  • Publisher(s): Wiley
  • ISBN: 9780470537442