A Guide to Starting Your Hedge Fund

Chapter 10Investing in Energy Commodity Hedge Funds

Know what you own, and know why you own it.

Peter Lynch

This chapter is useful for individual fund managers as well as asset allocators. Although this chapter is written with asset allocators in mind, it will be helpful for individual fund managers to better understand the need and mind-set of their prospective investors.

As an asset allocator, managing a portfolio of hedge funds and other strategies, you quickly realize that you need to kiss a lot of frogs before finding your prince. Finding quality managers is a painstaking process. We hope that some of the points outlined below will be helpful as you consider adding energy commodity hedge funds to your portfolio.

Initially, we will focus on the broader issues faced by all asset allocators as they seek to build and manage their portfolio. We will then build on that foundation by looking at the specific issues investors should be aware of when building a portfolio in this space.

Asset Allocation: Portfolio Building Basics

You may be an endowment, family office, fund of funds, or other large pool of capital seeking to build a portfolio of alternative investment managers that ideally provide superior investment performance while minimizing volatility found in the normal market. As part of your portfolio construction process, you may be considering different geographies, investment strategies, underlying asset classes, investment horizons, liquidity needs, and a myriad of other ...