In this section, I aim to give a fairly in-depth description of how one could assess, select, invest with and monitor a hedge fund of funds. This chapter – the largest in Part III, aims to help with the actual selection of a hedge fund of funds. The second chapter in Part III deals with designing such a selection process. The third chapter deals with the actual process of investing with a hedge fund of funds and the necessary monitoring and benchmarking processes that follow. Finally, I will give a sample report on a hedge fund of funds as an illustration of the theory in Chapter 9.
In this chapter I aim to give an overview of how I would go about selecting a hedge fund of funds to invest my own institution's money in. In this role I am a something of a ‘poacher turned gamekeeper’ since my main job is as a Chief Investment Officer of a hedge fund of funds – Key Asset Management. As such, I have tried to use my specialist knowledge of how hedge funds of funds are managed to provide some tips and pointers on how a good hedge fund of funds can be identified.
Just as when assessing a hedge fund, there is a range of issues to consider – namely the strength of the investment process, risk process, infrastructure and operations. However, given the ‘one step removed’ nature of hedge funds of funds there will be differences also, as we will see below.
As you may remember from the last section, I identified the core functions of a hedge fund ...