Investment process and risk management

Fri Jun 5, 2009



One of the goals of due diligence is to avoid investing in underlying hedge fund frauds or failures. There is no precise definition of what is to be included in hedge fund due diligence and no international regulatory standard exists to specifically address due diligence or the selection of underlying hedge fund managers.

The due diligence process can vary depending on the style of the underlying hedge funds and the process can be split into two time frames: prior to investing (ie during the selection process); and ongoing monitoring (ie after initial investment, during the investment period). The due diligence process during these time frames should be a combination of both quantitative and qualitative criteria.

It is essential that once an investment is made into an underlying hedge fund it is regularly monitored to capture any investment style drift, changes in the risk profile; changes in key management personnel and...

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