Hedge Fund of Funds Investing-An Investor's Guide.pdf

JOSEPH G. NICHOLAS

© 2004 by Joseph G. Nicholas. All rights reserved. Protected under the Berne Convention.
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ISBN 1-57660-124-2 (alk. paper)
Acknowledgments xiii
Introduction xv
Part 1 THE FUND OF FUNDS INDUSTRY
1 Fund of Funds in the Hedge Fund Industry 3
Hedge Fund Investment Options 4
Direct Investment 5
Customized Portfolio 5
Index Fund 6
Fund of Funds Investment 6
Growth of Funds of Funds 6
Hedge Fund Industry Characteristics and Trends 11
Hedge Fund Investment Structure 14
Legal Structure 16
Numbers of Investors and Minimum Investment Size 17
Reporting and Disclosure 19
Liquidity 19
Lockup 21
Summary 21
2 Hedge Fund Investment Strategies 23
2 Convertible Arbitrage 27
Distressed Securities 28
Emerging Markets 30
Equity Hedge 31
Equity Market Neutral 33
9 Issues in Due Diligence: Portfolio Management 155
Asset Allocation/Style Selection 156
Due Diligence Criteria in Manager Selection 160
Portfolio Construction 164
Summary 170
10 Issues in Due Diligence: Risk Management 171
Transparency and Separately Managed Accounts 172
Transparency 172
Managed Account Structures 175
Pricing Risk Case Study: Lipper 176
Style Drift Case Study: Integral 177
Risk Management 178
Compliance and Legal Issues 183
Summary 186
11 Fund of Funds Selection Case Study 187
Scenario 187
Step 1: Defining Investment Objectives and Parameters 188
Step 2: Screening to Create the Funds of Funds Short List 189
Step 3: Conducting a Due Diligence Screen of the
Funds of Funds Short List 189
Step 4: Evaluating Finalists for Selection 190
Final Selections 195
Summary 196
Appendix A: AIMA Due Diligence Questionnaire 197
Appendix B: Excerpts from HFR Fund of Funds
Industry Report 207
Index 253