Hedge Fund Due Diligence
Most Hedge Fund scandals would be avoided with proper due diligence performed by experienced managers.
More Educational Content coming soon
More educational content to come. Sujects include double taxation of bonds and corporate governance.
April 19, 2012: Death of a great investment counselor, Carl H. Otto
Updated: April 20, 2012
Due Diligence: Improper implementation monitoring
Investment skill is not enough to deliver value added. A skilled manager had forecast with positive IC. Unfortunately, his implementation was not monitored and resulted in significant negative impact. For example, the first month of the launch of a long-short version of his active strategy resulted in a 2% implementation shortfall (in one month!) which lead to a detailed inquiry. The manager realized that his trader was actively trading his trade list! The trader was deferring by weeks some buy & sell decisions and in many cases, never implementing some trades without telling the portfolio manager! The trader’s decision to cancel/defer some trades was mainly based on his technical views on those stocks.
A portfolio manager's sophisticated alpha forecast with positive IC was unknowingly replaced by a trader’s technical view with no measured IC!
Every steps of the investment process needs to be measured and monitored.
For more information on proper implementation monitoring, please contact us.
Dominic Clermont, ASA, MBA, CFA
State of the Art Investment Management