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

Chapter 6

Quantitative Analysis

“You can use all the quantitative data you can get, but you still have to distrust it and use your own intelligence and judgment.”

Alvin Toffler

Now that we have collected basic information from the hedge fund manager, conducted an initial review of the materials, and had a brief introductory interview with a senior investment professional, we have enough information at our disposal to decide if we want to move this manager further along in the due diligence process.

At this stage, we are at a tipping point. Should we decide that the hedge fund under review passes our initial tests, the amount of work that we will do going forward will increase significantly. We will need to perform an extensive quantitative analysis as well as a full-blown portfolio review. In addition, we will schedule an onsite meeting, where we will meet with all the key members of the investment, risk, and operations groups. When this has been completed, we will then conduct extensive reference checks and hire an investigative firm to perform a background check on all the key team members.

Upon completing our initial phone interview with Jaime Wernick in Chapter 5, we created a list of follow-up questions and compiled a list of things to request from FCM. That list was included in a follow-up e-mail, and FCM has decided to provide most of what we had requested. The lone exception ...