Top Hedge Fund Investors: Stories, Strategies, and Advice

CHAPTER 2

The Investment Process

Best Practices of Successful Hedge Fund Investors

 

 

 

Hedge fund investors and their fiduciaries must establish an investment process that is consistent with their investment objectives and skills. Although any investor should conduct thorough due diligence of all potential investments, it is an extremely important consideration for someone investing in a hedge fund.

As hedge funds have become more prevalent and institutional, so has the industry. Several industry associations have endeavored to educate investors and establish standards to support their efforts to lobby regulators. The regulators themselves, primarily in the United States and United Kingdom, have also convened task forces, issued recommendations, and produced educational material to ensure that investors understand the risks and conduct thorough due diligence when investing in hedge funds.

Employing leading hedge fund researchers and authors, or committees of institutional investors and hedge fund managers, these groups have released extensive professional white papers and policy reports that serve as an incredible resource for hedge fund investors. To provide an introduction and broad overview of the hedge fund investment process, this chapter will highlight key points of two of those works, Principles and Best Practices for Hedge Fund Investors, by the Investors’ Committee to the President’s Working Group on Financial Markets, and AIMA’s Roadmap to Hedge Funds, from the Alternative ...