book

Fund of Funds Investing: A Roadmap to Portfolio Diversification

Name: Fund of Funds Investing: A Roadmap to Portfolio Diversification
ISBN: 9780470258767

by Daniel A. Strachman, Richard S. Bookbinder

December 2009

Intermediate to advanced

224 pages

6h 17m

English

Wiley

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Copyright
Acknowledgments
Introduction
1. On the Road
1.1. THE MODERN HEDGE FUND INDUSTRY1.2. WHERE HEDGE FUNDS CAME FROM1.3. THREE WISE MEN1.4. SOPHISTICATED INVESTORS1.5. HEDGE FUND BOOM TIME1.5.1. The Birth of Alternative Investments1.6. WHY FUND OF FUNDS1.6.1. Diversification 1011.7. INSTITUTIONAL INVESTORS LOVE HEDGE FUNDS1.7.1. Alpha Is?
2. A Hedge Fund Is What?
2.1. THE CREDIT CRISIS AND HEDGE FUNDS2.2. HEDGE FUNDS ARE AN ASSET CLASS2.3. LIQUIDITY PRESENTS PROBLEMS2.4. TECHNOLOGY HELPS THE INDUSTRY2.4.1. Some Strategies Fail to Deliver2.5. ACTIVISM IS A NEW BUZZ WORD2.6. PRIVATE EQUITY AND HEDGE FUNDS2.7. HEDGE FUNDS AROUND THE WORLD2.8. ALTERNATIVE INVESTMENTS
3. How Large Is the Market?
3.1. HEDGE FUND DATA IS WEAK3.1.1. Technology Is Helpful3.2. REPORTING IS WEAK3.2.1. Leverage3.2.2. Risk Management3.3. INSTITUTIONALIZATION OF HEDGE FUNDS
4. Hedge Fund Investing
4.1. PRICING PROBLEMS4.1.1. Accounting Rules4.1.2. Illiquid Securities4.2. HEDGE FUNDS AND THE PRESS4.2.1. The Failure of Large Hedge Funds Will Have a Major Impact on the Markets4.2.2. Hedge Funds Are Dangerous Because They Use Derivatives4.2.3. The Use of Leverage Is Bad4.2.4. Hedge Fund Strategies Are Niche or Quirky4.2.5. Hedge Funds Are All-Day Traders Using Nonpublic Information4.2.6. Hedge Fund Fees Are Too High4.2.7. Hedge Funds Don't Tell Us What They Invest In4.2.8. Fund of Funds Charge a Second Level of Fees, Which Reduces Returns4.2.9. Hedge Funds Dislike Fund of Funds4.3. THE FUND OF FUNDS VALUE PROPOSITION4.3.1. Fund of Funds Investors4.4. FEES4.5. ALLOCATION STRATEGIES4.6. BOUTIQUE INVESTING4.6.1. Institutional Names4.7. IVY AND BoNY4.7.1. Madoff
5. Understanding Alternative Investing Is Both Math and Science
5.1. HEDGE FUND RETURNS5.1.1. Stock Prices5.1.2. Yield Curve5.1.3. Credit Spreads5.1.4. Interest Rates5.1.5. Volatility5.2. DELIVERING ALPHA5.2.1. A Short but Sweet Case Study5.3. INVESTING IN A FUND OF FUNDS5.3.1. Asset Gathering5.4. THIRD-PARTY MARKETERS5.5. WHERE THE MONEY COMES FROM5.5.1. Raising Capital5.6. THE NEW NEW MANAGERS5.6.1. Due Diligence?5.6.2. Asking Questions5.6.3. Getting Answers5.6.4. The Due Diligence Process5.6.5. Ongoing Monitoring
6. Why Fund of Funds Work
6.1. THE EARLY ADOPTERS6.1.1. Manager Selection6.2. WHO INVESTS6.3. GROWING ASSETS6.3.1. How Hedge Funds Work6.3.2. Pension Plans and Hedge Funds6.3.3. Internal Concerns6.4. EVERYONE IS INVESTED IN THE SAME THING6.4.1. Consultant Issues6.5. EDUCATION6.5.1. A Pension Investor6.5.2. University Endowments6.5.3. Drivers of Growth6.6. GOING DIRECT
7. Understanding Risk and the Need for Due Diligence
7.1. LTCM ISSUES7.2. WHAT HAPPENED?7.2.1. What Really Is Systemic Risk?7.2.2. The SIV7.3. LEVERAGE AND LIQUIDITY7.3.1. The Credit Crisis7.4. UNDERSTANDING DUE DILIGENCE7.4.1. Due Diligence Around Risk7.4.2. Why Fund of Funds7.4.3. Getting Dirty7.5. UNDERSTANDING HOW MONEY IS MADE7.5.1. Transparency Issues7.5.1.1. Clocks7.5.1.2. BlackBerrys7.5.1.3. Turn Off the Internet7.5.2. The Key Components7.5.2.1. Transparency7.5.2.2. Financial Objective of the Manager7.6. MANAGED ACCOUNTS7.7. WHAT TO LOOK FOR FIRST7.8. FEE CHANGES7.8.1. Tactical Asset Allocation7.8.2. Where Are All the Managers?

8. Redemption
8.1. REDEMPTION REQUESTS8.1.1. How to Pick a Manager8.2. FUND OF FUNDS DUE DILIGENCE ISSUES8.3. LESSONS LEARNED8.4. HOT MONEY, COLD RETURNS8.5. NEW CHALLENGES8.6. LIQUIDITY ISSUES8.6.1. Redemption Issues8.6.2. High Water Marks8.6.3. Suspending Redemptions
9. Fees
9.1. INCENTIVE FEE9.2. MORE OR LESS9.2.1. Are Fees Justified?9.2.2. Reasonable Costs9.3. MULTI-MANAGER FUNDS9.3.1. Getting Returns9.3.2. Differentiating9.4. RESULTS VERSUS FEES9.4.1. Making Smart Decisions
10. Leverage Facilities and Risk Management
10.1. LEVERAGE AND PRIME BROKERS10.2. RISK MANAGEMENT10.2.1. Technology Tools10.2.2. Defining Risk Management10.2.3. Information Needs10.2.4. Credit Crisis Affects Risk Management10.2.5. Value at Risk10.3. RISK10.4. LIQUIDITY ISSUES AT PRIME BROKERS10.4.1. How to Evaluate Risk10.4.2. Leverage and Its Risk10.5. VALUATION RISK10.5.1. Portfolio Information10.6. THE DEMAND FOR BIG FIRMS
11. Recent Lessons Learned and Current Trends
11.1. WHERE THE RISK IS FOUND11.1.1. Noncorrelated Investments11.1.2. Transparency11.2. DELEVERAGE ISSUES11.2.1. New Leverage Rules11.3. FUND OF FUNDS FIRST11.3.1. Portfolio Valuation11.3.2. New Rules, New Products11.3.3. Thank You Bear and Lehman11.4. THE END OF AN ERA11.4.1. The Sovereign Wealth Funds11.4.2. SWFs Are BIG
12. New Products
12.1. 130/30 FUNDS12.1.1. Why Mutual Funds Can't Short12.2. HEDGE FUND REPLICATION12.2.1. The Cost of Replication12.3. OPPORTUNITIES IN EMERGING MANAGERS12.3.1. Emerging Manager Due Diligence12.4. RISKS ASSOCIATED WITH NEW HEDGE FUNDS12.4.1. Seed Capital Providers12.4.2. Data Helps the Decision Process12.4.3. Young Funds Make Sense
13. Multi-Strategy Funds versus Hedge Fund of Funds
13.1. DRAWDOWN ISSUES13.2. HOW BLOWUPS AFFECT THE INDUSTRY13.2.1. Funds of Hedge Funds13.2.2. Multi-Strategy Hedge Funds13.2.3. Why Multi-Strats13.3. CONVERGENCE IN THE HEDGE FUND INDUSTRY13.3.1. Credit Crisis in Multi-Strat Funds13.3.2. Allocations and Due Diligence13.3.3. Review, Review, Review13.3.4. Realizing Risk
14. How Fund of Funds Source Managers
14.1. WHERE MANAGERS COME FROM14.1.1. Talk Is Good14.1.2. The Inside Track14.2. BLENDING METHODOLOGIES
15. Conclusion
15.1. WHAT WE CAN AGREE ON15.1.1. Continued Growth15.2. DON'T OVERLOOK DUE DILIGENCE15.2.1. Due Diligence Helps Avoid Losses15.3. HINDSIGHT IS 20/2015.3.1. Playing Both Sides15.4. STILL, WE BELIEVE15.5. THE ANSWER ON FEES
Epilogue: Turning Points
WHAT IS CLIMATE CHANGE?RECENT PROGRESSWHERE IS THE OPPORTUNITY?Role of Hedge FundsCutting-Edge StrategiesA CLIMATE OF GREEN STIMULUSClimate Change Is a Game ChangerDON'T FORGET!
A. Appendix
A.1. STANDARD DUE DILIGENCE: (NAME) FUNDA.1.1. General InformationA.1.1.1. A. Investment ProcessA.1.1.1.1. Core Exposure Management:A.1.1.1.2. The Process of Front–Line Investment Analysis and Risk Management:A.1.1.1.3. Oversight Function of Risk Management Policies/Protocols:A.1.1.2. B. TurnoverA.1.1.3. C. Investment InformationA.1.1.4. D. Company and Management InformationA.1.1.5. E. Company InformationA.1.1.6. F. InfrastructureA.1.1.7. G. Liquidity & FeesA.1.1.8. H. ComplianceA.2. (NAME): IMPORTANT DISCLAIMERS
Glossary
GLOSSARY SOURCES
Notes
CHAPTER 2CHAPTER 3CHAPTER 4CHAPTER 5CHAPTER 6CHAPTER 9CHAPTER 10CHAPTER 11CHAPTER 12CHAPTER 13CHAPTER 14EPILOGUEGLOSSARY

Content preview from Fund of Funds Investing: A Roadmap to Portfolio Diversification

Appendix A. Appendix

Note

DISCLAIMER: THIS MATERIAL IS TO BE USED ONLY AS AN ILLUSTRATION AND NOT FOR PREPARATION OF DOCUMENTS; NOR DOES IT IN ANY WAY CONSTITUTE LEGAL OR ANY OTHER FORM OF ADVICE.

STANDARD DUE DILIGENCE: (NAME) FUND

General Information

(1) Please describe all the strategies you deploy in the (NAME) Fund (e.g., fixed income arb, convertible arb, event arb, long/short equities, etc.). The core tenet of (NAME)'s investing strategy is relative value investing. In general, relative value investing in the (NAME) Fund involves the purchase of undervalued securities and hedging with fair value or overvalued securities. Regardless of the specific asset class, this is the core of the strategy. Current asset classes involved in the multi-strategy portfolio include Mortgage Arbitrage, Global Fixed Income Arbitrage, Convertible Bond Arbitrage, Event Driven Arbitrage, and Capital Structure Arbitrage. The asset allocation is dynamic, dependent upon current market conditions and opportunities in specific asset classes. The expectation is that the multi-strategy fund will have an improved risk/return profile, since the fund has a wide investment universe and a large set of markets to explore for hedging purposes.
(2) Do you operate in all markets globally or do you limit yourself to specific markets? Globally.
(3) What do you consider the revenue prospects to be for the strategies you exploit? We anticipate a Libor + xxx basis points to LIBOR + xxx ...

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