Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Investment Management

This section is a high-level summary of some of the common themes and questions investors use to perform due diligence on a fund's investment process. It is by no means comprehensive and is intended to provide a sample of the types of issues that investors are facing when trying to determine the value and quality of a fund's investment process themselves, independently from the documentation and high-level representations of senior management. Most if not all of the questions related to a fund's investment process should be done in person with as many people of mixed seniority as possible. The goal is to find out what is really going on at the fund and not just have a pitch book recitation by the investor relations staff. Remember that if you cannot get access to the actual decision makers when you are trying to invest, it is unlikely you will have access if something goes wrong! Hearing it directly from the firm's founder and lieutenants is always best, but getting the same message from a diverse number of people who perform certain tasks on a day-to-day basis or should be familiar with them is also quite useful.

What is Your Strategy, and How does it Work?

Investors who are evaluating a manager often start with high-level questions that provide them with some context about the firm, its investment strategy, and how it works.

1. What is the manager's self-described style, and how does it fit within a particular classification scheme?

2. What are the current ...