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 Manager Analysis: A Comprehensive Guide to Portfolio Selection, Monitoring, and Optimization , also published by Wiley. He received his BS in finance from St. John's University and his MBA from Fordham University.
"Starting from hedge funds's roots in Shogunate Japan, Frank Travers has written a truly comprehensive book on hedge fund analysis. Pulling from his years of experience as a hedge fund allocator, Travers offers insights that heretofore could only be learned on the job. With a colorful writing style and a robust sense of history, Hedge Fund Analysis is as interesting for the experience hedge fund professional as it is compelling for the novice. This book is a must read for anyone interested in hedge fund research."?Bruce MacDonald, Chief Investment Officer, Simple Alternatives ?As the title suggests, it is a no non-sense guide to the exercise of selecting hedge funds, that uses a sober and methodical language ? among the few whimsical items are the fictional hedge fund organisation (FCM) and some dry quips.??Opalesque
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