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

Other Considerations

There are many other important service providers that a hedge fund manager needs to consider. The choice of technology provider, payroll and record-keeping provider for the management company, real estate agent for space procurement, and the disaster recovery or document storage and retention provider are all critical to the smooth functioning of a fund.

Hedge funds that have a well-developed business model with a CEO, CFO, and COO are well positioned to assign responsibility to individuals within the firm to select and monitor service providers and make great choices. Firms with less staff and less function expertise outside of trading need to rely on the legal, audit, prime brokerage, and administrators to help them make appropriate vendor choices.

Investors can look to a number of industry associations and best practice guides to help them assess a hedge fund's business model and service partners. The Alternative Investment Management Association publishes “A Guide to Institutional Investors Views and Preferences Regarding Hedge Fund Operational Infrastructures” that provides information that investors can use to assess possible investment choices. The guide provides a road map prepared by seasoned institutional investors related to fund governance, risk, performance, terms, ownership, and operations.

Another very useful website to review content from a wide range of hedge fund service providers is hedgeworld.com under its “Service Provider Directory.”