Managing Hedge Fund Managers – Quantitative and Qualitative Performance Measures Quantitative nad Qualitative Performance Measures

Invaluable insight into measuring the performance of today's hedge fund manager
More and more institutional funds and high-net-worth assets are finding their way to hedge funds. This book provides the quantitative and qualitative measures and analysis that investment managers, investment advisors, and fund of fund managers need to allocate and monitor their client's assets properly. It addresses important topics such as Modern Portfolio Theory (MPT) and Post Modern Portfolio Theory (PMPT), choosing managers, watching performance, and researching alternate asset classes. Author Edward Stavetski also includes an appendix showing detailed case studies of hedge funds, and gives readers a road map to monitor their investments.
Edward J. Stavetski (Wayne, PA) is Director of Investment Oversight for Wilmington Family Office, serving ultra high-net-worth families in strategic asset allocation, traditional and alternative investment manager selection, and oversight.

This book takes a different tact in providing insight into the analysis of hedge funds.  The analysis of hedge funds is evolving as inflows to the funds have increased.  Many published materials of late have focused on the applications of the long established Modern Portfolio Theory (MPT).  MPT has been at the forefront of financial analysis primarily for traditional asset classes.  But current research and findings have demonstrated that MPT and traditional analysis have large gaps and have been ineffective in the analysis of hedge funds, and new approaches using PMPT (Post-MPT), behavioral finance and other methods have proven more useful.  This book incorporates quantitative and qualitative methods into its methodology.  The qualitative framework examines areas typically overlooked in traditional analysis, while the quantitative measures examine methods more suited to non-normal results that are the trademark of hedge fund investing.  Additionally, Stavetski goes further by presenting specific cases to demonstrate the shortcomings of MPT, the red flags raised and how PMPT and behavioral analysis may have provided early warning signs to investors.  The goal is to provide readers with reliable non-traditional tools for these non-traditional assets.

Preface. Highlights of the Book. Acknowledgments. Introduction. The Art and Science of Hedge Fund InvestingAre You Precisely Wrong or Approximately Correct? The Explosion of Hedge Funds. What are Hedge Funds? Finding a Comfort Zone. A Look beneath the (Book) Covers. As You Begin. Chapter 1. Asset Allocation and Fiduciary Duty. Investment Policy Statement: The Roadmap. Determinants of Portfolio Performance. Why Alternate Investments? A Closer Look at Hedge Fund Structures. The Rise of Socially Responsible Investing. Fiduciary Responsibility. Where Do I Start? Chapter 2. Large Versus Small Funds. Good Things in Small Packages. Research Confirms Small Fund Advantage. Performance of New Small Funds. Attrition Rates. Drivers of Outperformance. Invested Interests. Aligned Interests. Point of Diminishing Returns. Master of Trend line Analysis. Chapter 3. The Search for an Honest Man. Finding Your Manager. Prime Brokers. Conferences and Industry Events. Industry Publications. Incubators and Platforms. Industry Websites and Databases. Building Your Own Database. Unconventional Sources. Six Steps to Kevin Bacon. Sizing up the Flock. What's in the DDQ? Summary. Chapter 4. Performance Analysis. Torturing the Numbers Until They Confess. The First Step: Understand What Is Being Measured. Two Sides to Hedge Fund Performance: Long and Short. Performance Standards. Check the Entry Finding a Benchmark Peer Analysis Confusion from the Best and the Brightest? A Practitioners View. Examine the Bad. Examine the Good. Expect the Improbable. I Surrender. Chapter 5. Risk in Hedge Funds. Risk Is Like the Weather: Everyone Talks About It, but No One Does Anything About It. Major Risk Categories. Liquidity Risk. High Watermark Risk. Concentration Risk. Operational Risk. Liquidity Mismatch Risk. Transparency Risk. Risk Process. Leverage Risk. Short Selling Risk. Reputation Risk. Submerged Risk. Counterparty Risk. Market Risk. Credit Risk. Model Risk. Complexity Risk. Key Person Risk. Sensitivity to Assumptions Risk. NAV Instability Risk. Derivatives Risk. Summary. Chapter 6. You Only Find out Who Is Swimming Naked When the Tide Goes Out. Look Behind the Numbers. Filling out the DDQ. Form ADV Part II. Fund Brochures and Documents. Planning the On-Site Visit. Summary. Chapter 7. Let the Games Begin. The Due Diligence Process. The Process. Examining the Organization. Preparing for the On-Site Visit. Preparing the Final Evaluation. In Conclusion. Chapter 8. Getting Ready is the Secret to Success. Portfolio Construction. Top-Down Strategy Analysis. Bottom-up Manager Analysis. Test or Model the Portfolio. Portfolio Optimization. Summary. Chapter 9. Navigating Buyers Remorse. It's Always Darkest Before It Goes Completely Black. Long Term Capital Management: Poor Diversification and High Leverage Are a Dangerous Combination. Bayou Group, LLC: Due Diligence is a Must. Wood River Capital Management: A Lack of Experience and Auditing. MotherRock: The Liquidity Squeeze in a Small Market Will End Badly When Volatility Increases. Amaranth: Liquidity and Concentrated Portfolios Can Drag a Fund down as Trend of Any Trade Eventually Reverses. Recent Events: Ospraie Fund. Your Final Exam. Applying Your Education. The Importance of Second Acts. Chapter 10. Monitoring Your Flock. I Walk in the Valley Darkness, I Fear No Evil. Everyone's Favorite Metric: Performance. Portfolio Exposures. Performance Trends. Peer Group Analysis. Strategy Reviews. Fund Size and Performance Impact. Management and Personnel Reviews. Third Party Vendors. Regulatory and Legal Risk. Business Continuity Risk. A Final Word on Monitoring. Appendix A. Sample Investment Policy Statement. Investment Policy Statement for Wilmington Family Office. I. Statement of Investment Objectives. II. Asset Allocation Appendix 6). Attachments. Appendix D. U.S. Equity Long/Short Managers. Proposal Questionnaire. A. Organization. B. Investment Professionals (Product Specific). C. Investment Philosophy and Process. D. Trading Process and Systems. E. Performance. F. Composite/Product Information. G. References. Bibliography. Chapter 1. Chapter 2. Chapter 3. Chapter 4. Chapter 5. Chapter 6. Chapter 7. Chapter 8. Chapter 9. Chapter 10. Index.