Description
Hedge Fund Analysis
An In-Depth Guide to Evaluating Return Potential and Assessing Risks
Wiley Finance Series
Author: Travers Frank J.
Language: EnglishSubject for Hedge Fund Analysis:
Keywords
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416 p. · 16x23.6 cm · Hardback
Description
/li>Contents
/li>Biography
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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.
Introduction xi
PART ONE Background
CHAPTER 1 Hedge Fund History 3
So Who Invented the Hedge Fund? 4
The Samurai 4
The Academic 5
The Legend 14
The Innovator 17
CHAPTER 2 Hedge Fund Asset Class 29
Definition 29
Hedge Fund Structure 31
Hedge Fund Strategies 32
Advantages of Allocating to Hedge Funds 43
Hedge Fund Size and Age Impacts Performance 52
PART TWO Hedge Fund Due Diligence
CHAPTER 3 Due Diligence Process 57
Key Areas of Focus within Each Component of Due Diligence 57
The Due Diligence Process Highlighted in This Book 60
Putting It All Together 67
Some Initial Thoughts 70
CHAPTER 4 Initial Data Collection 77
Data Collection 78
Due Diligence Questionnaire (DDQ) 80
Fictional Capital Management 80
Other Materials 106
Further Analysis 108
13F Analysis 116
Hedge Fund Journal 119
CHAPTER 5 Initial Interview 121
Initial Call or Meeting 121
Phone Interviews 122
Meeting Notes 139
CHAPTER 6 Quantitative Analysis 145
Performance Measures 146
Absolute Return Measures 146
Absolute Risk Measures 154
Regression-Based Statistics 164
Peer Group Analysis 168
CHAPTER 7 Portfolio Analysis 173
Attribution Analysis 174
Fundamental Analysis 189
Evaluating Portfolio Data 193
CHAPTER 8 Onsite Interviews 217
Onsite Meeting Strategies 219
One-on-One Meetings 219
Meeting with More Than One Person 222
Different Perspectives 223
Meeting Notes 224
Onsite Interviews at Fictional Capital Management (FCM) 228
CHAPTER 9 Operational Due Diligence 259
Case Study: Bayou Fund 259
Definition 261
Importance of Operational Due Diligence 263
Categorization of Operational Due Diligence 267
Interview with FCM Operational Staff 301
CHAPTER 10 Risk Due Diligence 309
Graphical Depiction of Hedge Fund Risks 312
Risk Due Diligence 314
Factor Decomposition Analysis 330
Interview with FCM Risk Manager 333
CHAPTER 11 Reference and Background Checks 339
Onlist and Offlist References 340
Internet and Social Media 341
Contacting References 343
Problematic References 346
Whose References Should You Check? 349
How Many Reference Calls Are Enough? 350
Background Checks 352
Summary of Reference Calls for FCM 353
CHAPTER 12 Hedge Fund Scoring Model and Decision Making 357
Hedge Fund Scoring Model 358
Putting It All Together 374
About the Author 379
Index 381
FRANK J. TRAVERS, CFA, is a portfolio manager at Larch Lane Advisors. He has over two decades of experience analyzing traditional long-only, private equity, and hedge fund strategies. Previously, he was the director of research at First Peninsula Capital and a portfolio manager at Pine Street Advisors and CIC Group. Additionally, he held positions as the director of due diligence at CIBC World Markets, associate director of international equity research at Evaluation Associates, and senior analyst positions at Morgan Stanley Asset Management and RCB Trust. Travers is the author of Investment ManagerAnalysis: A Comprehensive Guide to PortfolioSelection, Monitoring, and Optimization, also published by Wiley. He received his BS in finance from St. John's University and his MBA from Fordham University.