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Practical Operational Due Diligence on Hedge Funds: Processes, Procedures, and Case Studies



Practical Operational Due Diligence on Hedge Funds: Processes, Procedures, and Case Studies

Rajiv Jaitly

ISBN: 978-1-119-01874-2 February 2016 872 Pages


Tighten due diligence procedures for more successful hedge fund investment

Practical Operational Due Diligence on Hedge Funds is an encyclopaedic, comprehensive reference, written from the perspective of an experienced practitioner. Accompanied by a useful archive of factual material on different hedge fund issues, including failures, fines, and closures, this book focuses on the areas due diligence professionals should address, and explains why they're important. Extensive discussion of publicised cases identifies the manager entities and actual fund vehicles involved, and provides commentary on what could have been done differently in each case, backed by actual regulatory materials, such as SEC complaints, that recreate the events that took place. Readers gain a deeper understanding of the many facets of due diligence and the many possible pitfalls, learning how standardise processes and avoid major errors and oversights.

The amount of money managed by hedge funds has almost doubled from the $1 trillion under management at the time of the financial crisis. Hedge funds can be extremely risky, but can be extremely profitable — as money increasingly flows back in, due diligence on these alternative investments becomes more and more critical. This book provides complete guidance toward the due diligence process, with plentiful real-world examples.

  • Identify the areas of due diligence and what can go wrong
  • Create procedures and checklists to minimise errors
  • Learn what publicised cases could have done differently
  • Gain a deeper understanding of massive failures and successes

Proper due diligence can be a massive undertaking, but thoroughness is essential when the price of failure is so high. Practical Operational Due Diligence on Hedge Funds provides the details professionals need to be on point every time.

Preface xIiii

Acknowledgments xIvii

About the Author xIix

Disclaimer Ii

PART I Processes and Procedures

CHAPTER 1 What is a Hedge Fund? 3

CHAPTER 2 Defining Operational Issues 7

CHAPTER 3 Structures for Investment in Alternatives 15

CHAPTER 4 Is the Fund for Real? Establishing the Basics 25

CHAPTER 5 Understanding Fund Operations and Controls 61

CHAPTER 6 Governance – Managing Risk Through a Non-Executive Board 65

CHAPTER 7 Reporting to Members and Statutory Reporting 75

CHAPTER 8 The Curse of Leverage (Fund Liabilities) 87

CHAPTER 9 Fund Assets 103

CHAPTER 10 Fraud 129

CHAPTER 11 Fees: the Essence of Hedge Funds 137

CHAPTER 12 Regulatory Actions, Politics and Market Confidence 149

CHAPTER 13 Key Man Risk, Disaster Recovery and Business Continuity 175

CHAPTER 14 Negotiating Terms and Exercising Rights 181

CHAPTER 15 Risk Ratings and Scoring 195

CHAPTER 16 Marketing to Investors 229

PART II Case Studies

CHAPTER 17 Case Studies Pre-2000 239

CHAPTER 18 Case Studies 2000 275

CHAPTER 19 Case Studies 2001 285

CHAPTER 20 Case Studies 2002 289

CHAPTER 21 Case Studies 2003 297

CHAPTER 22 Case Studies 2004 313

CHAPTER 23 Case Studies 2005 319

CHAPTER 24 Case Studies 2006 359

CHAPTER 25 Cases Studies 2007 401

CHAPTER 26 Case Studies 2008 475

CHAPTER 27 Case Studies 2009 601

CHAPTER 28 Case Studies 2010 677

CHAPTER 29 Case Studies 2011 717

CHAPTER 30 Case Studies 2012 773

APPENDIX A Index of Case Studies by Investment Manager 785

APPENDIX B UK Serious Fraud Office Hedge Fund Investor Questionnaire 793