Below please find a definition of “Hedge Fund Redemptions”
Hedge Fund Redemptions: After investing in hedge funds some accredited investors have a much harder time getting their money out of a hedge fund then into them. While this is often preventable it is usually the result of:
Preset lockup periods where investors must keep their money in the fund for a minimum of 6 months to 3 years depending on the fund mandate but negotiable
The liquidity of the asset classes the hedge fund deals with. Some hedge funds work in such illiquid markets that they will have redemption clauses in their contracts that allow them to wait 3-12 months for more liquid markets before being forced to sell a position.
Arbitration. The process of going through arbitration and looking at which funds have been through it before can vary widely and be difficult. While a definate exception to the rule if you get invested with a rogue hedge fund manager you might have to chase them through arbitration or other legal means to redeem your initial investment.
All of this lends to making sure you have your investment goals and expectations clearly defined so they can included in research a hedge fund consultant does for you and so you can just keep these extra thing in mind while doing research yourself. Many hedge funds do not have lockup periods of more than 3-6 months and the majority work in relatively liquid markets. As the Financial Times put it, “The salutary lesson for those wanting to invest directly in hedge funds is that, under the commonly used limited partnership framework, they are, in effect, going into business with a managing partner, not just investing.”
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Tags: Hedge Fund Redemption, Hedge Fund Managing Partner, Hedge fund Liquidity, Hedge Fund Asset, Hedge Fund Market, Hedge Fund Accredited Investors, Hedge Fund Due Diligence, Hedge Fund Investing
An important part of running any successful company is reinvesting in the business, a hedge fund should be no different. In the following video, I provide you with ten signs that a hedge fund is investing in their own business.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Make sure the hedge fund manager has a real office.
They use service providers.
They invest in an experienced team.
The have a very strong advisory board.
They have training for their hedge fund employees, after they join.
The systems that they have in place.
They have processes in their hedge fund business documented.
The level of risk management for the hedge fund business is high.
The research that they use to make decisions.
The quality of their marketing materials.
I recently spoke at the GAIM conference in Monaco and many hedge funds were looking for ways to show investors that they consistently invest in their hedge fund business. These ten signs will give you a better idea of whether the hedge fund manager is, in fact, re-investing in their hedge fund business.
Transcript of Hedge Fund Business Investment
Hello, this is Richard Wilson and welcome to this short video on 11 signs that a hedge fund manager is reinvesting in their own business. I’m coming to you from Nice, France today where I was in town recording some training videos for the hedge ground and I just spoke in Monaco, next door, at the game. I had a conference with about 800 people there. And it was really interesting a while there. It was obvious that both hedge fund managers and family offices attending were very interested in knowing more about how to reinvest in their business the right way and how to make it obvious to investors or the hedge fund managers taking their business seriously and really reinvesting in their own business and taking it as something that, you know it was long-term venture and not something they’ll set up and try to make a million dollars in one year.
So the first thing they should look for is to make sure the hedge fund manager has a real office and that they’re not just running the fund out of their house or their garage. You know if somebody is taking their seriously they may have rented an office space or have an office for their employees as their fund grows. The second thing is they have service providers. Many times people try to do their own fund administration when they’re starting up but they don’t have a time broker to start with. If they’ve taken their hedge fund seriously and spoken with people they know, they have to have certain service providers in place. They should have an auditor, they should have an accounting firm, they should have a current brokerage firm, they should have a fund administration firm, they should have an attorney they go to, a compliance legal expert. If they don’t have those things in place, they haven’t done the very basics.
The next thing is team. This is the most important thing. If they have really taken their hedge fund seriously, they’re invested in their team. They have people with great experience, 7-10 plus years experience on their team and at the very least a very strong advisory board. Advisory boards just take a lot of work and creativity. If somebody doesn’t have a strong advisory board in place then it’s really hard to believe their taking their hedge fund business very seriously unless they’ve just started out and they have great bench experience on their team. That’s the only excuse they could find for not having a great advisory board in place.
The next sign is someone who has invested in their hedge fund is that they have training for the employees after they joined. In the hedge fund industry everybody values experience like gold until you come in the door and then almost nobody trains their current team. That is non-sub $1B hedge funds. Lots of large hedge funds do train their team consistently and very thoroughly. But most hedge fund managers under a billion dollars have no training systems in place for anyone on their team, which is I think really ironic given how valued a hedge fund experience is in our industry.
The next sign is someone who has invested in their hedge fund is the systems they have in place, the technology, the trading systems, the reporting systems, how everything flows through the business. You can really tell if it’s really segmented and not working well but how quickly people respond to requests for certain type of data and that you can just really tell someone has reinvested in how they run their business based on their technology and the reporting and trading the systems they have in place.
Next for your tips include having processes. All of the procedures and processes in your business should be documented so that when a new employee comes into the hedge fund, they just look at what processes are related to their responsibilities, they know how things are supposed to be done, everything in the hedge business should be done systematically, almost nothing is done only time. There should be a process for doing everything. In this way if you needed to replace someone on the team or God forbid, the principal of the hedge fund dies, the hedge fund can still move on and follow the same investment process, the same risk management techniques and the same capital raising strategies.
The last few tips here, the level of risk management in the firm, if somebody takes a lot of research, hard work and reinvestment in the business, you know had a very elementary risk management techniques just in how they chose securities, there’s really not enough to cut it anymore. They need to manage operational risk as well as portfolio risk in many different types of ways. So if the manager is not, then that’s a big sign they haven’t reinvested in their own business enough.
The last two tips. They research they use to make their investments, the experience on their team, how do they make their decisions, what’s the quality of information coming into those decisions, and lastly finally is the level of quality of their marketing materials. If their marketing materials looks like a college project or a high school then that says one thing, if their marketing materials look like something from Wall Street, coming out of Merrill Lynch or Goldman Sachs, it says something completely different.
So just to review real quick, the top 10 things that show the hedge manager is reinvested in themselves included their office space, their service providers, their team, their training for their team, their systems, their advisers or board of advisers, their processes and procedures, their risk management, their research and their marketing materials.
This is Richard Wilson. Thanks for joining me. I’m here in Nice, France and we’ll see you next time.
If you are a fund manager you may be asking, “What does a conference call have to do with due diligence?” In the following video recorded in Madrid, Spain, I explain how the conference call is an integral part of the due diligence process and how you should best prepare for a due diligence call.
Video Transcript/Summary: The strategies and tips provided within this video module include:
What does a conference call have to do with the due diligence process?
For more institutional investors you will have to go through a multi-step due diligence process.
A conference call is often a part of this due diligence process, sometimes the very first step in the process.
During the due diligence call you will cover your team bios, a powerpoint presentation or pitch book and then the investors will ask you questions and get to know your fund better.
It’s very critical that you understand that conference calls are a big part of the fund due diligence process.
I hope that this video helps prepare your fund for a due diligence conference call and helps you understand how the conference call fits into the broader due diligence process.
In the following video, I explain to you what a due diligence questionnaire (DDQ) is and why all hedge fund professionals should be very familiar with it. I also provide you with some tips for responding to a hedge fund due diligence questionnaire.
Video Transcript/Summary: The strategies and tips provided within this video module include:
A hedge fund due diligence questionnaire is a 20-60 page document that includes 30+ questions on how your hedge fund manages risk, how your hedge fund operates, and any other questions that are important for hedge fund investors to know.
The hedge fund due diligence questionnaire is used by hedge fund investors to evaluate hedge funds and compare that hedge fund to others.
Often times, hedge fund investors will take your answers to the due diligence questionnaire and keep it in a database for years. This is why it is so important that you prepare for this DDQ and provide the answers that investors want to hear.
Make sure that your response is provided within one day.
Make sure that your response is reviewed by a compliance or legal counsel.
Keep a master DDQ on file based on all of the hedge fund due diligence questionnaires that you have completed.
A hedge fund manager recently emailed me and said that he did not know what a DDQ was. I hope that this video has provided you with a better understanding of what a hedge fund due diligence questionnaire is and some valuable tips on how to complete a hedge fund DDQ.
Transcript of Hedge Fund Due Diligence Questionnaire
Hello, this is Richard Wilson. I wanted to create a short video module to help explain to you what a Due Diligence Questionnaire is or a DDQ is. I’m here in downtown Singapore, in town for an investment conference both here and in Tokyo. And I just got an e-mail this morning from someone who runs a hedge fund and didn’t know what DDQ standed for. And DDQ stands for Due Diligence Questionnaire.
So I just wanted to make this short, 3 or 4-minute video because I wanted people that can’t come to hedgeblogger.com or that a completely certified hedge fund professional designation program to know what a DDQ is. It should be a term that you know and are familiar with. You’re not lost during a job interview or when meeting with a potential investor. So a Due Diligence Questionnaire is a 20 to 60-page document which includes generally 30 to 50 questions or more about your hedge fund and how you operate, how you manage risks, how you make investments, how you manage your team and et cetera, et cetera.
So basically it’s a very well-detailed questionnaire about everything related to your hedge fund business so that a potential investor, typically an institutional investor can evaluate your hedge fund, how sophisticated you are, how institutional you are, how risk aware you are, what tools you use. They’ll ask things about disaster recovery, about progression within your team, about what happens if your portfolio manager leaves, how would that affect your trading performance, about the scope of your investments and how that could change the different types of market conditions.
And it’s just really important to do a very good job replying within the Due Diligence Questionnaire when an investor gives you one because often times they look at that, enter it in to their data base and stays there forever in their database, within that institutional investor’s firm. And often times if you answer just one or two questions wrong, it would kind of knocked you out of the running or you might spend a whole hour of phone call or two making up for a few small mistakes.
So a few tips, if you’re complete in DDQs and already knew what one was or you’re about to complete your first DDQ, make sure that your responses are provided within one day. One business day is a standard for replying to a DDQ, otherwise you’d like you’ve never done it before. Another test is to make sure it’s compliance approved. You know this isn’t like marketing materials per se. It really is if you’re trying to convince the investor to invest in you, is you can’t just say whatever you’d like. You have to pay attention to compliance rules and marketing rules, and have your compliance attorney or legal expert look at it before sending it out. And third you should definitely have a master DDQ on a file.
Once you’ve done one of these once, keep it. If you do a second one figure out what other questions were unique in that second one because most of them probably will be similar from the first one and then create a master DDQ file. So the more of these you complete, the more professional answers you’ll have, the quicker you’ll be able to do it, the graphs and graphics you’ll have to insert. You’ll just look more professional and you’d be more efficient at completing these DDQs.
So I hope this helps if you didn’t know what a DDQ was, you do now. And thanks for joining us here today.
Hedge Fund Redemptions: After investing in hedge funds some accredited investors have a much harder time getting their money out of a hedge fund then into them. While this is often preventable it is usually the result of:
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