The Future of Hedge Fund Investing: A Regulatory and Structural Solution for a Fallen Industry

CHAPTER 8

Remodeling the Funds of Hedge Funds

 

 

 

 

In the previous chapters I have outlined the reasons that have led to the failure of the so-called experts, funds of hedge funds. Now I will address a brand new approach to investing in hedge funds and how a fund of funds should be structured and managed. There is a lot of wealth in the world that is eagerly watching the alternative investment space of hedge funds but does not have the expertise to properly evaluate these investments. The recent newspaper headlines about failed due diligence on part of the funds of hedge funds have not helped foster any sense of confidence either. When the industry experts that the investors rely on to conduct due diligence on the hedge funds get duped, it only pushes capital further away from hedge funds. In fact, the hedge fund industry has shrunk by close to 40 percent from the end of 2007 to January of 2009. The fund of funds industry needs to change its model, the approach to hedge fund investing, if it wants to gain the respect and backing of the high net worth community, the institutional clientele, as well as the hedge funds it invests in. A properly designed fund of funds can be a very useful allocation conduit in the hedge fund industry that can also justify the additional layer of fees it charges.

FIVE INVIOLABLE COMMANDMENTS

Before we get into the proper way of conducting strategy-level due diligence, a hedge fund needs to have the following infrastructure in place before even ...