Hedge Fund Analysis: An In-Depth Guide to Evaluating Return Potential and Assessing Risks

Chapter 5

Initial Interview

“Judge a man by his questions rather than his answers.”

Voltaire

“I have no particular talent. I am merely inquisitive.”

Albert Einstein

Initial Call or Meeting

After reviewing the materials that FCM sent over to us (DDQ, presentation, monthly letters) and concluding that they passed the initial data review, we can now schedule a brief call with the hedge fund manager to address any open questions and to gain a better understanding of the fund so that we can begin to determine what its competitive advantages may be (if any). I generally start the process with a call but will meet with managers face to face if they are from out of town and will be in my area or if I am at a conference and have a chance to meet them personally.

I purposefully keep these calls brief; generally 30 to 40 minutes because I do my homework in advance and, as a result, typically do not need to ask basic questions. To keep these calls on point, I send an e-mail in advance to explain what I would like to cover and to set the time frame for the call so that we are all on the same page.

General Discussion Topics

• Key investment professionals—emphasis on their experience and how they work together.
• Process—how it works and why it will continue to work.
• Risk controls—rules and who is in charge.
• Performance outliers—targeted questions regarding periods of extreme out/underperformance. ...