Overview Of Hedge Fund Hedge Fund Seeding: A Compelling .
Investment StrategiesOverview of Hedge FundSeedingHedge FundSeeding: ACompellingAlternativeinvestors who provide the seed capital.1.1. Seeding Relationship Benefits Managers andMany factors influence the success of a new hedgeInvestorsfund, including a sound investment strategy, a high-Bycaliber team, robust operational infrastructure andinstrumental in the development of start-up hedgequalified service providers. However, even with thesefunds. A strategic and significant seed investmentqualities, there is no guarantee a fund will attractcan help a start-up hedge fund attract outsidesufficient assets for survival. Most managers can’tcapital, perhaps serving as a “stamp of approval”launch with a large enough asset base to coverand validating the firm’s viability. When an emergingorganizational expenses and be considered crediblemanager has critical mass from a seeder, others areby institutional investors. There are distinct advantagesmore willing to invest because they no longer representfor managers who can attract substantial client assetstoo large a share of the manager’s assets. Also, manyat inception:allocators have minimum asset level requirements that Increased focus on investment performance;make it difficult for managers below a certain AUM An early build-out of personnel and operationallevel (typically 50 million or 100 million) to attract newresources; andinvestors. Ability to take a longer term business andarelegal and economic arrangements between thequite low. Today, they are much higher. Investorsseeder and the fund and/or the new manager. Theseexpect greater transparency, more client service, well-may include assistance on business development,known third-party service providers and high-qualitymarketing, risk management and governance, asback office systems and personnel. As a result, thewell as guidance on business issues faced by newbreak-even asset level is much higher.managers. The seeder’s support lets the manager focus primarily on fund performance at a critical juncture inthe hedge fund’s life cycle.Self-fund with the expectation they will attractSeeders benefit as well. Providing early capital typicallycapital once they have a quality track record.entitles seeders (both direct seeders and investors inMaintain a bare-bones operation, delaying newseeding vehicles) to share in the hedge fund’s revenuehires and support systems.(“enhanced economics”). This participation can beSeek a strategic partner who provides a criticalquite profitable and takes a number of different forms,mass of capital in exchange for economicwhich we discuss below (see “Enhanced Economicsparticipation in the manager’s business.of Hedge Fund Seeding”). Seeders can also gainother advantages such as early exposure to emergingIf structured properly, the strategic partner approachmanagers, rights to future capacity, seeding rights forcan be highly beneficial to the manager and toHedge Fund Seeding: A Compelling Alternativeseedersstrategic support in other areas, depending on theinception:62capital,Historically, barriers to entry for new hedge funds wereManagers have several options at the hedge fund’sAlternative Investment Analyst Reviewearly-stageIn addition to capital, seeders may offer managersinvestment approach.Mark Jurish, C.E.O. and C.I.O. at Larch Lane Advisors LLCPeter Brady, Director of Marketing at Larch Lane Advisors LLCTodd Williams, Director of Seeding Strategies at Larch Lane Advisors LLCproviding63HedgeFund Seeding: A Compelling AlternativeAlternative Investment Analyst Review
Investment StrategiesInvestment Strategiesfuture funds, full transparency, risk controls and the potential right to monetize their profit participation at a future1.4. Manager Performance Drives Dual Return Componentsdate.A seed investment incorporates two return components – investment performance and share of revenues– but it is important to note that both are manager-driven. Obviously, investment performance depends on1.2. Early Exposure to Emerging ManagersA number of research studies show that emerging hedge funds have consistently outperformed more establishedhedge funds, both on an absolute and a risk-adjusted basis. Hedge Fund Research (HFR) found that over the 10year period between 1994 and 2004, funds with less than a three-year track record outperformed older funds byover 5% annually, with nearly identical volatility. Outperformance was most pronounced during a fund’s first twoyears. (On a cautionary note, that same research also found a somewhat higher mortality rate for new funds,primarily due to operational risks (HFR Asset Management, [2005])). Similarly, a 2009 study by PerTrac FinancialSolutions finds that younger and smaller funds have outperformed larger and older funds over the long termmanager skill. The revenue share component depends on third-party asset growth and, as with most investmentvehicles, hedge fund asset growth tends to be highly correlated to performance. Managers with lacklusterperformance will deliver neither the investment returns, nor the asset growth necessary for a successful seedmost investment vehicles, hedge fund asset growth tends to be highly correlated to performance.investment.seedingonly managerswith theabilitytheto investmentgenerate attractivereturnsin a growthvariety of marketManagersTherefore,with lacklusterperformancewill deliverneitherreturns, northe assetenvironmentsis essential.necessary fora successful seed investment. Therefore, seeding only managers with the ability to generateattractive returns in a variety of market environments is essential.Exhibitof1:a Compositionof Overa Seeder’sExhibit 1: CompositionSeeder’s ReturnTime Return Over TIme(Jones, [1996-2008]). Specifically, PerTrac shows funds with less than 100 million in AUM outperformed funds withover 500 million in AUM by 377 basis points annually between 1996 and 2008, with only slightly higher volatility.During the same period, funds with less than a two-year track record outperformed funds with over a four-yeartrack record by 562 basis points annually with lower volatility.Neither the PerTrac study nor the HFR study made meaningful adjustments for survivorship or backfill biases.Survivorship bias occurs when funds that go out of business are excluded from an analysis. Backfill bias can occurwhen managers are able to retroactively report good initial performance and elect not to report poor initialperformance. A 2008 study by Aggarwal and Jorion, made a number of adjustments to raw performance datato mitigate these biases. This study found returns lower than those in the PerTrac and HFR studies, but still reachedthe conclusion that managers generate “abnormal” performance of 2.3% during their first two years relative tolater years (Aggarwal and Jorion, [2008]).Thus, a number of independent studies have concluded that on average, emerging hedge fund managersoutperform more established managers. Why? New managers may be highly motivated to outperform theirpeer group to attract assets and build a viable business. Emerging managers that are not too large also tend tobe nimble. They are better able to make off-the-radar investments that are simply too small for multi-billion dollarmanagers to invest in, such as attractive small-cap companies.By contrast, established managers typically have a more institutional investor base and institutional investors arenormally not as performance-dependent. More established fund managers with larger AUM earn substantialSource: Larch Lane AnalysisSource:Larch Lane AnalysisExhibit 1 shows how the return composition of a successful seed investment shifts over time.Exhibit1 showsinhowthe returnof a successfulover time.Typically,Typically,the firstseveralcompositionyears after seedinga fund, theseedvast investmentmajority of shiftsthe investor’sreturncomesin the firstseveralafter seedingOvera fund,vastmajoritythe investor’sreturncomesperformance.fromyearsfund performance.time,theas thefund’sAUMofgrows,more of thereturncomesfromfromfundenhancedmanagement fees, even with average performance. Therefore, established fund managers may not be aseconomics.In manyseedercontinuessharecomesin the fromfund’senhancedrevenue evenafter redeemingthecases, theOvertime, as thefund’scases,AUM thegrows,moreof the toreturneconomics.In manymotivated to outperform, especially if it requires them to maintain the risk profile that produced their historicseeder continues to share in the fund’s revenue even after redeeming the initial seed capital. These annuity-likeperformance. Lower risk tolerance often leads to average performance.1.3. Enhanced Economics of Hedge Fund SeedingA seeder’s return potential is greater than that of other investors in a hedge fund because the seeder usuallyreceives a portion of the hedge fund’s revenue stream. Thus, the seeder’s reward grows in sync with the hedgeinitial seed capital. These annuity-like payments may continue as long as the seeded manager continues torun a profitable firm. Also, depending on the deal terms, there may be a provision for the manager to buypaymentscontinueasseederthe seededmanagerto runa profitableAlso,dependingout the mayseeder’sinterestasorlongfor theto participatein a continues“monetizationevent”such as a firm.sale orpublicofferingthe fund.significantlyenhancethe seeder’sreturn.on thedealofterms,thereThesemay canbe aprovision forthe managerto buyout the seeder’s interest or for the seederto participate in a “monetization event” such as a sale or public offering of the fund. These can significantly2. Where does this strategy fit in a portfolio?enhance the seeder’s return.fund’s asset growth. The exact nature of the enhanced return varies substantially based on the terms of theLikethishedgefundsfitandequity funds, a hedge fund seeding vehicle fits into a portfolio’s2. Where doesstrategyin aprivateportfolio?seeding agreement. A seeder’s participation can range from a simple fee discount to a majority stake in theLikefundshedgeandprivatefunds, theira hedgeseedingvehicle portfoliofits into uityfunds,equitydeterminingproperfundrole inan institutionalcarefulmanager’s firm. The net return on investment to a seeder is always higher than that of regular LP investors in thealternative investment allocation. However, because seeding vehicles have characteristics of both iskhaveboth hedgeconsiderationof factorssuch as becausereturn potential,investmentandcharacteristicsliquidity. On anofefficientfrontier,funds andsame fund. Not only does the seeder earn a portion of the fees collected when third-party funds are raisedwe believerisk/returnprofiletheirof a properseeding rolevehiclefallsbetween fundsof hedgefundscarefuland privateprivateequity thefunds,determiningin aninstitutionalportfoliorequiresconsideration ofbut even in unusual cases where no additional third-party assets are raised, the seeder generally receives anfactors such as return potential, investment risk and liquidity. On an efficient frontier, we believe the risk/returneffective fee rebate through a share of the management and incentive fees applied to the seed capital.profile of a seeding vehicle falls between funds of hedge funds and private equity funds.Alternative Investment Analyst Review64Hedge Fund Seeding: A Compelling Alternativeequity funds.2.1. Diversification BenefitsWhenever investors analyze a potential investment such as a hedge fund seeding strategy, it isimportant to consider the likely correlation of the investmentto the rest of their portfolio. A group of65HedgeearlyFund Seeding:A CompellingAlternativeAlternativeInvestmentstage hedgefunds(ESFs) is likelyto have a reasonably low correlationto an existingportfolioofAnalyst Review
80%Investment StrategiesInvestment Strategies60%40%2.1. Diversification BenefitsWhenever investors analyze a potential investment such as a hedge fund seeding strategy, it is important toconsider the likely correlation of the investment to the rest of their portfolio. A group of early-stage hedge funds(ESFs) is likely to have a reasonably low correlation to an existing portfolio of more established hedge funds. ESFstypically hold portfolios that are substantially different than larger, more established hedge funds. For example,as discussed above, ESFs can invest in smaller, “less crowded” trades. Consequently, adding a hedge fundseeding strategy to an existing portfolio can potentially enhance returns and reduce overall portfolio risk.GrossInvestmentsand Distributionsfor a PrivateExhibit Typical2: TypicalGrossInvestmentsand Distributionsfor a PrivateEquity FundEquity Fund20%120%0%100%1234Cumulative Investments80%5678Cumulative Gross DistributionsSource: Prequin Hedge: Private Equity Intelligence60%2.2. LiquidityThere are several layers to a hedge fund seeding investment and each has a different liquidity profile. First, thereis the liquidity of the seeding vehicle; next, the liquidity of the investment in the seeded hedge funds; and finally,Exhibit 3 shows how hedge fund seeding vehicles compare to other alternative investments interms of liquidity, investment risk and correlation to traditional investment assets.40%20%the liquidity of the individual hedge funds’ holdings.Most hedge fund seeding vehicles require capital to be invested for an extended period, typically three to fouryears. This time frame is necessary because the seeding vehicle, in turn, commits capital to seeded managers formultiple years. If the seeding vehicle combines multiple seed investments in a single portfolio, it may take severalyears to identify and negotiate deals with a high-quality group of managers. In such cases, investors may agreeto a staggered investment schedule, committing to an investment amount from which capital is drawn as seeddeals are finalized. Specific liquidity terms vary depending on the structure of the seeding vehicle.We believe the added return from enhanced economics is more than enough to compensate hedge0%investors for reduced liquidity relative to direct hedge fund investing. In fact, we believe hedgefund seed1345678fund seeding vehiclesmay2offer higherreturn potentialpreciselybecausetheyfill a liquiditygap betweenprivate equity and traditionalCumulativehedge ticstrategyInvestments Cumulative Gross Distributionsthat does not fit neatly into a pre-defined investment silo can reap ample hibitand LiquidityCharacteristics ofExhibit 3:3: Risk andLiquidity iveInvestmentsInvestmentsimprove liquidity by negotiating the right to redeem the seeded assets early if the seeded hedge fund violatesExhibit 3 shows how hedge fund seeding vehicles compare to other alternative investments intermsofliquidity, investmentand correlationto Investmenttraditional investmentassets.StrategyTypical risk LiquidityofRiskCorrelation toLockupUnderlying(volatility)TraditionalWe believe Periodthe added returnfrom enhanced economics is more thanAssetsenough to compensate hedgeAssetsfund seed investors for reduced liquidity relative to direct hedge fund investing. In fact, we believe hedgefund seeding vehicles may offer higher return potential precisely because they fill a liquidity gap betweenVentureCapital6-10 yearshedgeHighlyMediumLowan opportunistic strategyprivateequity and traditionalfunds.IlliquidInvestors whoare willing to considerthat does not fit neatly into a pre-defined investment silo can reap ample rewards.Infrastructure5-8 yearsHighly Illiquid HighLowcertain terms, such as risk constraints or drawdown limits. For these reasons, a seeding investment is usually moreMezzanine5-8 yearsHighly IlliquidHighMediumliquid than a private equity fund and, in some cases, may even offer more liquidity than a typical hedge fundHedge Fund Seeding3-4 PeriodLiquidity ofUnderlyingVariesAssetsInvestment RiskLow(volatility)Correlation toTraditionalLow/MediumAssetsA seeding vehicle commits capital to individual hedge fund managers for a certain number of years and as thosecommitment periods expire, money is available to be reinvested or returned to investors in the seed vehicle. Ifreinvested, the money may be subject to the standard liquidity terms of the seeded hedge fund.The fact that seeded hedge funds typically hold liquid securities distinguishes seeding vehicles from private equityfunds, where the underlying investments are normally illiquid. The sponsor of the seeding vehicle can furtherof funds.StrategyThe ability of the seeder to request and enforce portfolio risk constraints provides added accountability and mayimprove overall liquidity. In 2008, some hedge fund managers strayed from their stated investment strategies,putting money into illiquid deals that exacerbated losses during the crisis. This is less likely to happen when themanager of a seeding vehicle is monitoring the portfolio and has the right to redeem from that fund if any riskconstraints or other contractual terms are violated.Passive Hedge Fundof Fund InvestingSource:VenturePrequin Hedge,AnalysisCapitalLarch Lane6-10yearsHighly IlliquidMediumLowInfrastructure5-8 yearsHighly IlliquidHighLowMezzanine5-8 yearsHighly IlliquidHighMediuminvestment risk and correlation to traditional investment assets.2.3. Cash Flow Comparison Highlights Liquidity AdvantagesAnother way to look at liquidity is to compare seeding vehicles to traditional private equity structures. Exhibit 2shows the gross investments and distributions of a typical private equity fund using data from Prequin Hedge’sPerformance Analyst database, which includes empirical data for over 3,200 private equity funds worldwide. Thisprivate equity cash flow model shows that distributions exceeded the initial investment in year eight and, in fact,private equity vehicles typically tie up investor cash for seven to eight years. By comparison, hedge fund seedingvehicles typically return invested cash in three to five years.66We believe theaddedreturnfrom enhancedenough to compensatehedge fund seedHedgeFundSeeding3-4 years economicsVaries is more thanLow/MediumLow/Mediuminvestors for reduced liquidity relative to direct hedge fund investing. In fact, we believe hedge fund seedingvehicles may offer higher return potential precisely because they fill a liquidity gap between private equity andPassive Hedge FundVariesVariesLowLow/Mediumtraditional hedgefunds.Investors who are willing to consider an opportunistic strategy that does not fit neatly intoof FundInvestinga pre-defined investment silo can reap ample rewards.3. Common Seeding ModelsExhibit 3 shows how hedge fund seeding vehicles compare to other alternative investments in terms of liquidity,Alternative Investment Analyst ReviewExhibit 3: Risk and Liquidity Characteristics of Various Alternative InvestmentsHedge Fund Seeding: A Compelling AlternativeThus far, this paper has focused on seeding relationships in which the hedge fund manager provides a perpetualrevenue share in exchange for seed capital. Other seeding models are available and though a detailed67HedgeFund Seeding: A Compelling AlternativeAlternative Investment Analyst Review
Investment StrategiesInvestment Strategiesdiscussion is beyond the scope of this paper, below is a brief summary of three common approaches:can be structured as an allocation from the underlying hedge fund or as a payment from the management3.1. Equity OwnershipThe seeder provides capital in exchange for equity ownership in the manager’s business and typically takes anentity.activepartnership8-23-2012a1ex1.pdfrole. Considerationsin this4. JURISH BRADY WILLIAMS1 9/13/2012 10:19:40AM arrangement include the deployment of the capital (which can3.3 Platform Providersbe seeded into the manager’s hedge fund or invested directly into the management company), the level andA number of large, established hedge funds and financial institutions offer startup hedge funds a “turnkey”nature of the seeder’s participation in the manager’s business and the potential tax consequences of being ansolution. The sponsor provides an investment platform, marketing and operational support and seed capital.active participant, rather than a passive investor.In return, the platform provider typically receives a significant share of the manager’s profits. These solutions letmanagers quickly begin implementing the strategy and focusing on investment performance and may give3.2. Revenue SharingThe manager agrees to share a certain percentage of management and/or incentive fees in exchange for athem an attractive base salary or draw, but the managers are not truly running the fund as an independentbusiness.Exhibit 4: Comparisonof Hedge FundSeeding FundModelsExhibit 4: Comparisonof HedgeSeeding ModelsIn all seeding models, the manager and the seeder must negotiate a wide range of terms. Each model hasSeed ModelEquityOwnershipdeal. Exhibit 4 summarizes the main considerations for the three seeding structures described above.Pros and Cons for ManagerProsMaintain independence and buildfranchise valueInput and assistance in building thebusinessConsNo scale to hedge fundMore intrusive than pure revenuesharingRevenueSharingCMYCMMYCYCMYKcapital commitment. The investor does not explicitly obtain an ownership stake in the business. The revenue shareHedge FundPlatformProsMaintain independence and buildfranchise valueAutonomy over business/least intrusiveFuture funds and strategies may not beaffectedConsMinimal support aside from capitalManager is typically responsible formanagement company expenses prior tocalculation of revenue sharePros and Cons for SeederProsAbility to exert control overmanager’s businessParticipate in manager’s successwhile allowing manager someindependenceConsCapital covers management companyexpenses; more dependent on growthin third-party assetsPotential liability and regulatoryreporting issuesPotential tax consequences of activeparticipationProsCapital exposed to investmentstrategy return potentialPortfolio risk controlsIndependence from managementcompanyConsLimited or no control over manager’sbusiness decisionsNo portfolio level controlProsImmediate access to significant capitalAccess to operational and marketinginfrastructureLower business riskProsDirect control and oversight over allaspects of manager’s investmentprocess and businessBest liquidity profileConsNo independent businessMay not have complete investmentautonomyPotential difficulty in separating fromthe platform providerConsResource intensiveNo separation of liabilityadvantages and disadvantages and the best solution depends on the preferences of the parties involved in the4. Case Study: The Life of a Seeding TransactionInitiating, executing and monitoring a hedge fund seeding transaction is a complex undertaking. Experience isvital to a smooth and ultimately successful seed investment. While many fund of fund firms allocate capital toestablished hedge funds, the universe of dedicated seed capital providers is much smaller. The following casestudy presents a start-to-finish look at the life cycle of a seeding transaction.4.1. SourcingA hedge fund seeding transaction begins the same as any other hedge fund investment. The first step is to identifyprospective manager candidates. Sourcing prospects is an important component of the seed investment processand requires a strong network and specialized contact points outside the traditional hedge fund business.4.2. Investment Process Due DiligenceNo amount of revenue sharing or deal structuring makes up for mediocre investment results. First and foremost,the team that is being seeded has to be talented and have the ability to generate attractive returns.Though similar to the investment due diligence process for traditional hedge fund investments, choosingfunds to seed is more challenging because shorter track records are common and quantitative analysis moredifficult. Effective selection must consider the management team’s quality, investment experience and businessmanagement skills, the nature of the investment strategy and execution process, portfolio risks and the riskmanagement process and trading capabilities. Developing a strong proof statement and conviction in themanager’s ability to generate returns is critical.4.3. Reference and Background CheckingMark Twain is reported to have once said that history does not repeat itself, but it sure does rhyme a lot. Webelieve that saying applies to people as well. It is essential to engage in extensive reference checking because itindicates how an individual has behaved in the past, but more importantly, it provides indispensable insight intohow the individual is likely to behave in the future, both in terms of investment acumen and integrity. Referencesfrom peers, counterparts and clients quickly raise any warning flags such as exaggerated past performance orother integrity issues. Third party background checks should be performed on all principals of a potential neAnalysisIn all seeding models, the manager and68the seeder must negotiate a wide range of terms. EachAlternative Investment Analyst ReviewHedge Fund Seeding: A Compelling Alternative69HedgeFund Seeding: A Compelling AlternativeAlternative Investment Analyst Review
Investment StrategiesStrategiesthe separation and (c) specifying any continuing duties or obligationsInvestmentbetween the parties.Below are afew situations to be anticipated and their related issues.4.4. Operational Due DiligenceExhibit 5: Executinga SuccessfulSeedInvestmentExhibit5: Executinga SuccessfulSeed InvestmentRecently, some widely publicized hedge fund frauds have shaken investor confidence and underlined theStep 1importance of a strong operational infrastructure. A thorough operational review is critical to a hedge fundseeding decision for two key reasons: (1) more hedge funds fail due to poor business infrastructure than poorSource Manager Candidatesinvestment decisions, (Kundro and Feffer, [2004]), and (2) studies show that the higher failure rate of start-upFind candidates through:managers compared to established managers is often due to business rather than investment issues (Christory,Daul, and Giraud, [2007]).While ESFs may be held to different operational standards than established firms, the minimum acceptable Existing manager contacts Former colleagues Investors Broker referralsstandard for any hedge fund has risen. ESFs may not yet have dedicated, full-time compliance officers andtechnology professionals, but they are expected to have in place codified policies, controls and systems thatare adequate for their current business and consistent with any legal or regulatory requirements to which theyare subject. They are also expected to have relationships with reputable service providers. Seeded funds shouldmeet minimum standards in the following areas: governance structure and decision making processes compliance policies and procedures, particularly valuation procedures day-to-day operations third-party service providers (audit, administration, prime brokerage, custodians, legal counsel) Step 2Conduct Investment Due DiligenceSelect managers able to generateattractive returns based on:Although there are many facets to every seeding transaction, here we focus on three primary features:economics, fund and management structures and risk controls.4.5.1. EconomicsThe economic terms of seed transactions are among the most sensitive and are generally kept confidentialfrom the marketplace. Revenue shares range from 10% to 40% or more. Where a given seed transaction fallswithin that range depends on many factors including the amount of capital provided, liquidity terms, seed fundcapacity, strategy, team experience and competition. Before 2008, a widely accepted rule of thumb was fora seeder to expect 1% of revenues for each 1 million of seed capital. Though this rule breaks down quickly asseed transactions reach and exceed 50 million, at smaller transaction sizes, the rule still seems to hold. In someinstances, terms may be even more favorable to the seeder than the 1% per million rule of thumb.4.5.2. Risk ControlsControls on fund activities are intended to define the “bucket of risk” attached to the investment. Unlike investorsin passive hedge funds where offering memoranda typically allow extremely broad latitude, seeders canCapital Entry Lump sum investment Daily operations Third party serviceprovidersCapital provided at managerrequestMonitoring seeded fund Internal controls Daily position reports Adherence to risk limits Monthly portfolio updatecalls Business management skillsStructure Transaction Investment strategy and executionprocessPrimary considerations: Economics Risk management process Risk controls Fund managementstructures seed investment is made.Compliancepolicies/proceduresTrading capabilitiesContact manager-provided andoff-list referencesacumen and motivation. The negotiation process also provides a glimpse into the ongoing interactions after the While many seeders have their own standard agreement and structure, each seed transaction is unique basedmanagers negotiate terms and the relative emphasis placed on particular terms provide insight into their businessFoster Productive RelationshipsInvestment experienceCheck ReferencesDeal structuring negotiations serve as a useful extension of the due diligence process. How potential seedGovernance and decisionmaking 4.5. Structuring a Transactiondiscussed here pertain to most seed transactions regardless of structure. Management team qualityStep 3 Step 6Review Operational Framework internal controls, particularly cash controlson the management team, the seeder’s expectations and the investment strategy to be pursued. The categoriesStep 4Step 5Raising Assets Co
1.3. Enhanced Economics of Hedge Fund Seeding A seeder’s return potential is greater than that of other investors in a hedge fund because the seeder usually receives a portion of the hedge fund’s revenue stream. Thus, the seeder’s
Section I Hedge Funds. 9 2. Introduction to Hedge Funds 11 3. Establishing a Hedge Fund Investment Program 37 4. Selecting a Hedge Fund Manager 57 5. Due Diligence for Hedge Fund Managers 69 6. Risk Management Part 1: Hedge Fund Return Distributions 93 7. Risk Management Part II: Additional Hedge Fund Risks
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I am a hedge fund manager I am an investor Global Hedge Fund Benchmark Study 8 This survey is part of an ongoing series of research projects conducted by AIMA, Simmons & Simmons and Seward & Kissel. We considered the health of the hedge fund industry and explore various trends prevalent in the hedge fund industry.
2 THE CONCEPT OF HEDGE FUNDS 6 3 TYPOLOGY OF HEDGE FUNDS 8 4 CHARACTERISTICS OF THE HEDGE FUND INDUSTRY 11 4.1 Location of hedge funds and their managers 11 4.2 Incentive structure and failure rates 17 4.3 Parties involved 18 4.4 Investors 19 4.5 Fund size 20 5 RECENT EVOLUTION OF THE HEDGE FUND BUSINESS 22 6 FINANCIAL STABILITY IMPLICATIONS 25
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