Euromoney Audit Training

This course is a basic overview of hedge funds and covers general topics including what they are, how they operate, the advantages and disadvantages of investing in hedge funds, the strategies adopted, the risks and due diligence issues. It also covers funds of hedge funds as a vehicle to access hedge funds. 

This course is suited for a wide array of people:

• Those who want to understand hedge funds as an investment vehicle (portfolio managers, pension fund managers, private bankers etc) are primarily interested in the benefits of investing, the risks and return possibilities as well as the various strategies and due diligence.
• Those who are somehow exposed to hedge funds investments (back office people, legal people, auditors etc) are primarily interested to understand how hedge funds are structured, how their strategies work, the legal and accounting implications of dealing and investing in hedge funds.
• Those who provide services to hedge funds (prime brokers and other service providers) need to understand how hedge funds work, the differences between them and long-only investments and their needs.
• Regulators who need to understand how hedge funds work for monitoring purposes.

Who should attend?

• Private Bankers
• Wealth Managers
• Investment Analysts
• Hedge Fund Service Providers
• Prime Brokers
• Portfolio Managers
• Pension Fund Managers 
• Family Office Managers
• Risk Managers
• Compliance Staff
• Back Office Managers
  

Day 1

Registration commences at 8:30 on day one
Programme runs from 9:00 - 5:00 daily

Overview of the Hedge Fund Industry

• Hedge fund defined.
• History of hedge funds.
• Pioneering hedge funds of Benjamin Graham and A.W. Jones.
• Analysis of the original A.W. Jones Long / Short model.
• Size of hedge fund industry.
• Number of funds.
• Location of funds.
• Hedge fund asset under management.

Hedge Funds vs. Traditional Long Only Investments

• Organisation and regulation.
• Onshore funds.
• Offshore funds.
• Administration / record keeping.
• Audit.
• Accredited investors / 3c1 Fund.
• Qualified investors / 3c7 Fund.
• Pricing.
• Short-term focus.
• Short selling strategies.
• Emphasis on simultaneous positions in multiple instruments.
• Importance of the carry trade.
• Liquidity / lockups.
• Transparency.
• Fees.
• Asset based fees.
• Incentive fees.
• Fee calculator.

Most Common Hedge Fund Strategies

• Long / short.
• Long only.
• Short only.
• Market neutral.
• Sector focused.
• Statistical arbitrage.
• Global macro.
• Convertible arbitrage.
• Capital structure arbitrage.
• Merger arbitrage.
• Distressed securities.
• Credit.
• Activist funds.
• Managed futures / commodities.
• Multistrategy.
• Publicly traded hedge fund like structures.
• Carry trades.
• Call options on hedge funds strategies.

Case Study:
Managing a hedge fund.

Day 2

 
Strategies of Great Hedge Fund Managers

• George Soros.
• Edward Lampert.
• Seth Klarman.
• Paul Tudor Jones.
• Michael Steinhardt.
• Julian Robertson.
• James Chanos.
• Others.

Fund of Hedge Funds

• History of fund of funds.
• Size of fund of funds market.
• Pros and cons of fund of funds.
• Fund of funds vs. multistrategy fund.
• Optimal fund of fund portfolio size.
• Portfolio construction techniques.
• Black Litterman model applied to hedge funds.
• Intelligent rebalancing of the fund of fund portfolio.
• Negotiating capacity.
• Negotiating fees.
• Obtaining adequate transparency.
• Managing inflows and outflows smoothly.

The Psychology of Hedge Fund Managers

• Behavioural finance applied to hedge funds.
• The importance of positive monthly returns.
• The call option nature of hedge fund competition.

Hedge Fund Due Diligence

• Hedge fund red flags.
• Sample due diligence list.
• How to assess operational stability.
• How to conduct reference checks.
• How to conduct background checks.
• How to maintain and ongoing due diligence process.
• Hedge fund “Hall of Shame”.

Long Term Capital Management           

• Amaranth.
• Bear Stearns.
• Madoff.
• Others.

Case Study:
Fund of funds for Private Banking Clients.

Day 3

Risk Management for Hedge Funds

• Using style analysis to detect style drift.
• Measuring liquidity risk.
• Measuring concentration.
• Effective measurement of fund leverage.
• Value at Risk (VAR) for hedge funds.
• Conducting hedge fund stress tests.
• Creating a risk dashboard for effective monitoring of hedge funds.
• Discussion of “fat tails” and Black Swan Theory.

Hedge Fund Performance Evaluation Techniques

• Concept of alpha.
• Sharpe ratio.
• Treynor ratio.
• Jensen’s measure.
• Sortino ratio.
• Upside to downside capture.
• Batting average.
• Appraisal ratio.
• Omega ratio.
• Survival and other biases in hedge fund returns.

Using Hedge Funds to Capture Client Assets

• Lack of correlation with traditional investments.
• Outperformance in down markets.
• Why it is hard for investors to find hedge funds on their own.

Discussion of Global Trends in Hedge Funds 

• Greater transparency.
• Lower fees.
• Hedge fund replication – to a limited extent.
• Increased liquidity.
• Increased transparency.
• Greater regulation.
• Emerging market focus.
• Focus on niche strategies.
• Focus on emerging managers.

Walk Through Internet Sites Relevant to Hedge Fund Research and Management

• HedgeFund.net.
• MAR Hedge.
• HedgeWorld.com.
• SmartMoney MarketMap.
• SeekingAlpha.com.
• Google Alerts.
• Nasdaq Real-Time Filings website.
• Delphion.com.
• Many more.

Case Study:
Risk Management and Performance Evaluation of Hedge Funds.

Course summary

 

• John Longo

  Dr. Longo, CFA is Clinical Associate Professor of Finance at the Finance Department at Rutgers Business School and the Chief Investment Strategist for The MDE Group, a registered investment advisor with $1.5 billion under management. At The MDE Group he is also a Principal in a $100 million hedge fund. Barron’s has ranked The MDE Group as the 4th best independent registered investment advisor in the U.S. for 2007 and 2008. He is author / editor of the critically acclaimed book, Hedge Fund Alpha: A Framework for Generating and Understanding Investment Performance. He has appeared on CNBC, Bloomberg, Fox Business, BBC World and been quoted in The Wall Street Journal, Forbes, and many other media outlets. Previously, he was a Vice President at Merrill Lynch & Co., Inc.

Understanding Hedge Funds

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

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