Hedge Funds of Funds: A Guide for Investors

10

Designing the Investment Process

10.1 OVERVIEW

In this chapter I will suggest how to establish a selection process that allows you to home in on exactly what you want from a hedge fund of funds, establish a shortlist and then you use the questions in the previous chapter to find the most appropriate investment for you.

10.2 DESIGNING THE SELECTION AND INVESTMENT PROCESSES

It is important to have some structure to the way that you assess the hedge fund of funds universe before you choose one to invest with.

First of all you need to establish what kind of return stream you require, e.g. an involatile product with modest return aspirations or a ‘shoot the lights out’ product that could boost your returns but at a cost of volatility. Are you happy with equity exposure or must the portfolio be ‘market independent’, i.e. generate returns totally independent of market direction? Do you want to invest in an off the shelf product or would you rather a bespoke mandate? What is the minimum assets that a hedge fund or fund manager must have for you to invest?

All these questions should to be considered before you can even begin to look for a hedge fund of funds and I would recommend that as accurate as possible search criteria is established before the sourcing of hedge funds of funds begins. A suggestion of such search criteria is as follows:

Minimum necessary assets in fund	Minimum asset base of manager
Bespoke product or fund?	Do they have product in the area needed?
Is equity ...