Chapter 4

Hedge Fund Investing

When it comes down to it, there is no science to picking hedge funds or any investment, for that matter. For however many investors there are in hedge funds, there are at least as many different reasons why they picked that particular fund and actually gave the manager money to manage.

This chapter explains how various investors and consultants choose which hedge funds to invest in and why. Just as there are many different investment strategies managers employ to post returns, there are equally diverse ways to choose a hedge fund in which to invest one's hard-earned assets. Hopefully, by reading this chapter you will gain a better understanding of how people choose managers, what to look for in a manager, and what to avoid. The key to any successful investment decision is performing complete and thorough due diligence. Due diligence is not easy; it is a difficult task that takes time, patience, and experience. Remember: Just because someone calls themselves a hedge fund manager, has an office, and some documents, does not make it so. You need to get information and process it thoroughly before you commit to investing with a manager or firm. Take time and do your homework—the result will be worth it; trust me.

Prior to the credit crisis and again occurring in 2010, some investors believed that a manager was doing them a favor by accepting their money or taking their assets into their fund. This is nonsense. It's ridiculous and just plain silly. It ...

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