The future of hedge fund investing: a regulatory and structural solution for a fallen industry
Gespeichert in:
| 1. Verfasser: | |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Hoboken, NJ
Wiley
2009
|
| Schriftenreihe: | Wiley finance series
|
| Schlagworte: | |
| Online-Zugang: | Inhaltsverzeichnis Klappentext |
| Beschreibung: | Includes bibliographical references and index |
| Beschreibung: | XIX, 183 S. graph. Darst. |
| ISBN: | 9780470537442 |
Internformat
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Datensatz im Suchindex
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|---|---|
| adam_text | Titel: The future of hedge fund investing
Autor: Agarwal, Monty
Jahr: 2009
Contents
Foreword xlil
Introduction Xv
CHAPTER 1
Recent Hedge Fund Scandals 1
Palm Beach, Florida 1
KL Financial, March 2005 2
Ritzy Palm Beach Offices: Looking the fart 3
Ronald Kochman: The Facilitator 4
The Duping and the Post Mortem 4
Amaranth Advisors, September 2006 6
Outgrowing Its Core Competency 7
Brian Hunter 7
Risk Management Failure 8
Bernie Madoff, December 2008 9
Bernie the Broker Overnight Becomes a
Derivatives Trader 10
Palm Beach Connection and Robert Jaffe 12
Conclusion: Failure of the So-Called Experts:
The Funds of Funds 13
Split Strike Convergence 14
The Mystery of the Missing $65 Billion 15
Lesson 1: Relationships Do Not Trump Due Diligence 18
Lesson 2: When Investing in Hedge Funds, Hire Experts 18
Lesson 3: We Did Not Know What We Were
Investing In Is Not An Excuse 19
Conclusion: So Called Experts, Funds of Funds,
Have Failed 19
vl
yilj__________________________________________________________CONTENTS
CHAPTB12
The Players 21
Flow of Capital in the Hedge Fund Industry 22
Pension Funds 22
High Net Worth Individuals (HNWs) 24
Banks 26
Endowments 28
Conclusion 30
CHAPTB3
Hedge Funds 31
Incentives and the Disincentives of the Hedge
Fund Fee Structure 32
Education of the Future Hedge Fund Manager 35
Jim Simons, Renaissance Technologies
(A $34 billion hedge fund) 35
Training Grounds of the Hedge Fund Manager 36
The Chart Readers 37
The Quants 37
The Global Macro Trader 38
From a Caterpillar to a Butterfly 39
Skills of a Trader 40
Personality of a Trader 42
Andrew Lahde s Goodbye Letter 42
CHAPTHU
Hedge Find Strategies 45
Long-Short Equity 46
Event Driven 47
Global Macro 49
Fixed-Income Arbitrage 50
Relative Value Arbitrage 51
Effect of 2008 on these Strategies and Looking Forward 53
CHAPTBIS
Hedge Fund Service Providers and Regulators 57
Building a Business 57
Lawyers 58
The Offering Memorandum: Caveat Emptor 59
Contents Ix
Administrators and Custodians 61
Auditors/Accountants 65
Prime Brokers 67
Third-Party Marketers 68
Regulators 70
The Toothless SEC 71
Conclusion 73
CHAPTHI6
Funds of Hedge Funds 75
Philosophy and Services 75
Failure of Fiduciary Duties 77
Statistical Bucketing by Strategy 78
Due Diligence and the Analyst 79
What s in a Name? 81
The AIMA Due Diligence Questionnaire 82
Where Are the Experienced Professionals? 84
The (Lack of) Ongoing Due Diligence 85
Multi-Strategy Hedge Funds 86
CHAPTB7
An Expert Failure 88
Uselessness of Historical Data Crunching 8 9
Quest for Steady Returns: Systematic Destruction of Alpha 92
Bucketing by Asset Class and Geography: A Flawed Concept 94
Alpha versus Beta: The Trader Generates
Alpha, not the Strategy 97
Prolonged Bull or Bear Market 99
Markets with Short Cycles 99
Relative Value Markets 100
Specialized Strategies 100
10 Percent to 20 Percent Allocation Rule 101
Managing a Hedge Fund Manager 103
Bookrturner Versus a Proprietary Trader 104
So-Called Hedge Fund Experts 105
Hedge Funds: House of Second or Third Chances? 107
John Meriwether 107
Brian Hunter 1°7
December 2008: Deutsche Bank Credit Desk 107
January 2009 108
X CONTENTS
Why Does a Losing Hedge Fund Manager
Shut down His Fund? 108
Why Does the Industry Keep Funding a Failed Trader? 108
Conclusion 110
CHAP1H8
Remodeling the Funds of Hedge Funds 113
Five Inviolable Commandments 113
Traders Managing Trading Investments 114
Differentiate Between Alpha and Beta Strategies 115
Bucketing Based on Trader Methodology 116
Mean Reversion 117
Positive Carry 118
Systematic or High Frequency 118
Momentum 119
Appropriate Risk Template by Strategy 120
Hypothetical Interest Rate Risk Report 121
Hypothetical FX (Foreign Exchange) Risk Report 124
Manager Stop Loss and Linked Redemptions 126
Hypothetical Returns of a Proprietary Trader 128
Not 10 Percent, Majority Every Time 130
Ongoing Due Diligence: It Is Not Just About Returns 132
CHAPTB9
Correct Risk Dm Mgence 135
Position Concentration, So What? 136
Management of Stop Loss Limits: The Be-All and End-All 137
Over-Leverage and Illiquidity 139
Market Liquidity 240
Borrowed Cash 140
Long Gamma Leverage 141
Hedging: Will the Market Let You Short? 142
CHMTHUQ
Interviewing a Hedge Fund Manager 145
Relationship 145
Strategy-Related Questions 146
What Qualifies You to Execute This Strategy? 149
Work Experience 151
Risk Annetite 152
Contents__________________________________________________________________Xl
Thinker, Adapter, Entrepreneur? 154
Discipline and Character 155
CHAPTBH1
Hedge Fund Industry s Role in 2008 Market Crisis 159
Borrowers, Bankers, and Investors 161
Don t Blame the Products, Blame the Users 162
Failed Due Diligence on Part of Investors 163
Failure of Fiduciary Responsibilities by Brokers
and Lies by Borrowers 164
No Hedge Fund Has Been Bailed Out 165
Systemic Risk and Derivative Transactions 167
Regulating Hedge Funds 169
CHAPTBH2
The Bid 171
Robert Allen Stanford s Ponzi Scheme 171
Hedge Fund Industry Offers More Disclosure 172
Similar Problems with the Pension Funds, Endowments, SWFs 173
Bibliography 175
Index 178
$65.00
USA/$78.00 CAN
(continued from front flap)
How to fix the hedge fund industry
The world will always have its
Ponzi
schemes
and money managers like
Bernie Madoff.
But
for today s financial professional, the germane
question raised by recent scandals is not why
people commit crimes, but rather why the paid
experts
—
especially fund of funds managers
—
failed to detect investment hazards that seem so
glaring in retrospect.
The Future of Hedge Fund Investing spells out,
in refreshingly stark terms, exactly how the
industry let down its clients and the changes
needed to restore their confidence. Written by
Monty Agarwal, the founder of Predator Capital
Management, this insider s guide gives a full
assessment of the business, including the ad¬
vantages of hedge funds, their pitfalls, and, most
importantly, how to avoid these missteps.
The coverage begins by describing the hedge
fund universe, which includes funds and funds of
funds; fund regulators, major investors, and mid¬
dlemen; fee structures, incentives, what it takes
to become a successful hedge fund manager,
and typical investment strategies. From here,
Agarwal explores possible solutions and fixes as
he touches upon several important issues within
this field, such as:
•
Structural changes for funds of funds in areas
including trading, diversification, risk manage¬
ment, and due diligence
•
Guidelines for investors to follow when inter¬
viewing hedge fund managers
•
How to improve the overall due diligence process
•
The role of hedge funds in the
2008
market
crisis and what can be learned from it
•
How the experts failed and the different ap¬
proach the industry needs to adopt to avoid
these failures as we move forward
Given the vital role hedge funds play in the
global capital markets, this industry deserves
to be both better understood and better run.
The Future of Hedge Fund Investing offers a
critical yet constructive analysis of these cru¬
cial financial entities. Whether you re a financial
professional, a potential investor, or simply an
interested reader, The Future of Hedge Fund
Investing gives you a clear look at the state of
hedge funds today as well as a picture of what
the future may hold for them.
MONTY AGARWAL worked as an interest
rate and currency trader on Wall Street between
1995
and
2003.
From
2003
to
2008,
he was a
portfolio manager in the hedge fund industry.
Agarwal founded Predator Capital Manage¬
ment, which had
$500
million under manage¬
ment, where he was the portfolio manager of an
Asia-focused interest rate and currency market
strategy. Agarwal also served as a portfolio man¬
ager for III Funds. He holds a bachelor s degree
in computer science and engineering from the
University of Pennsylvania and an MBA, with a
concentration in finance and business econom¬
ics, from the University of Chicago Booth School
of Business. Visit www.MACMLLC.com to learn
more about the services Agarwal provides to the
hedge fund investor community.
Jacket Design:
Loretta
Leiva
Jacket Illustration:
©
Alamy
Subscribe to our free Finance and Investing eNewsletter at
wiley.com/enewsletters
(continued on back flap)
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| title | The future of hedge fund investing a regulatory and structural solution for a fallen industry |
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| title_full | The future of hedge fund investing a regulatory and structural solution for a fallen industry Monty Agarwal |
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