The difference between the return of the hedge fund and a predicted rate of return is called ' alpha.' In other words, alpha is a measure of the skills of a hedge fund manager. It is debatable how much influence the actions and skills of a hedge fund manager have on the long run return of the fund's portfolio. noun an investment partnership that uses high-risk, speculative methods to obtain large, short-term profits. Hedge fund mangers are compensated handsomely, but they also face tremendous pressure because of the high risk of the portfolios that they manage. A hedge fund manager manages a fund's risk and return, marketing strategy, and capital funding from unit sales. Hedge fund managers are primarily responsible for running a hedge fund's daily affairs and for making ongoing investment decisions regarding the composition of the fund's portfolio. The Fund of Funds manager has discretion in choosing which strategies to invest in for the portfolio.
The strategy designs a diversified portfolio of managers with the objective of significantly lowering the risk (volatility) of investing with an individual manager. The role of a hedge fund manager is similar to that of a mutual fund manager. Fund of Funds invest with multiple managers through funds or managed accounts. up-front fee, redemption fee, management fee, performance fee, etc.? Do these already cover fees charged by both the mother and baby funds? How are fees calculated (e.g.A hedge fund manager is an individual responsible for directing all activities associated with the operation of a hedge fund. What are the fees that I have to pay, e.g. If there is a market crisis or if the FoHFs suffers a big loss, how do I get information to determine whether or not I should stay in this FoHFs? How did the FoHFs perform at major events such as the Asian Crisis and 911?Īfter I buy the FoHFs, how do I check the performance? What information will I receive from the fund manager/distributor and how often? What is the maximum peak to trough loss that this FoHFs has ever sustained? What is the performance (since inception, year-on-year) and volatility of the FoHFs since inception? How much do you recommend to hold FoHFs in one's liquid investment portfolio? How do I determine when is the best time to buy this FoHFs? And to redeem? What can I expect from this FoHFs, in terms of risk/reward? How does the fund manager monitor and evaluate the performance of the baby funds?ĭoes the FoHFs receive fee rebates from the baby fund managers?Ĭan we have access to the information on the baby funds? How does the fund manager select the baby funds?ĭoes the FoHFs use internal or affiliated managers?ĭoes the FoHFs use capacity constrained managers such as distressed and emerging markets funds? How many baby funds does the FoHFs usually invest in? How does each of these strategies generate profits? What are the biggest risk factors for each strategy? What kind of economic and market conditions are favorable for each of the strategies? What are the strategies allowed in this FoHFs? What is the current asset size of the FoHFs? How does it compare with the size at inception? What are the investment objectives of the FoHFs? What is the minimum investment of the FoHFs? (b) About the Fund of Hedge Funds (FoHFs): If the FoHFs management group loses key people, will you let me know?
Will you keep track of whether or not key people in the FoHFs management group leave? How many staff are in the FoHFs management group? How many are involved in the investment/manager selection process? What is the total asset size of FoHFs being managed by the fund manager?
How many FoHFs does this fund manager manage? Hedge funds are actively managed investment pools whose managers use a wide range of strategies, often including buying with borrowed money and trading esoteric assets, in an effort to beat average. Who is the fund manager? How long has the fund manager been managing hedge funds generally and how long has he/she managed this particular FoHFs?ĭoes the fund manager invest in the FoHFs himself/herself? If yes, what percentage of the asset is it from the manager? What percentage of your liquid assets do you plan to allocate to hedge funds?ĭo you accept the fact that you are investing into the skills of the manager of the FoHFs as well as the skills of the managers of the baby funds?ĭo you accept the fact that the returns of a FoHFs is not tied to the returns of the markets that the FoHFs is involved in? That means a rally in the underlying markets of a FoHFs may not necessarily cause your FoHFs investment to go up in value, or vice versa in a down market. How do you define risk: Losing some or all of the investment? Getting less than the savings rate? Unable to get funds within a short period of time?
What sort of returns do you expect to get from the investment each year? Questions to Ask Before Investing in a Fund of Hedge Funds
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