In this video, I compare the investment process and the research process for a hedge fund. I will provide you with some ideas for how to improve or change your investment and research processes while making sure that you do not distress your investors by making drastic changes to your fund.

Video Transcript/Summary: The strategies and tips provided within this video module include:

Institutional investors may become concerned by funds that drastically change their investment process from time to time.
Almost everyone tweaks their investment process over time, but changing your theory can be worrying to investors.
Having a three-step research process is important but often overlooked by funds.
Think about your processes as a system that is constantly improved and updated.

Transcript for Investment and Research Process

Hello, this is Richard Wilson and today we’re going to talk about the importance of an investment process and your investment research process, how those two go together, how you can be more institutional in communicating both to your investment process and your research process and how both of those things can be continually improved without damaging the consistency of your track record.

So first of, institutional investors as well as investors in general are always a little bit concerned about investment processes that greatly change over time because they might see the performance in your portfolio directly connected to one piece of your investment process but that’s not the same as what you did during the first half of your track record. They might just throw away that track record and start where your new investment process started because that is really irrelevant performance. So it’s very important to remember, if you’re going to change your investment process make sure you keep the core components in place because it really will change how you’re producing your returns, what risk you’re taking probably and that will really change the perspective that investors have on your long-term track record when it eventually gets longer.

One thing to remember is that almost everybody tweaks their investment process constantly, most hedge funds I know every — you know 1 to 3 years are changing little components of their investment process. That’s totally normal adding new risk management tools especially it’s something that’s commonly done. What’s different though is if you change your theory or if you change the main process or you take out 30% or 40% of the process. That is a major change and probably it should not be done unless it’s starting a new fund or it’s some drastic situation where you have no choice.

The difference between that and the investment research process is that many times when you bring in a research component there may be a 3 or 4-step process that your fund uses, which can be really helpful to document within your marketing materials, maybe there is the input stage where all of the research from infinite consulting firms, from some technology report or platform you have access to, from a fundamental research you may do, from trending site, from maybe global macro-type research, all of those inputs come in and then maybe there is a report that’s made or maybe there’s some sort of synthesis step, then after that maybe there’s a refining and then further synthesis step and then the research is actually put to use and applied to make any investments.

So having that, the 3-step research process which is very defined in who’s doing what and when and why is important and I think that lots of people skip that step and they don’t explain it exactly how they use the research and when and what inputs they have into that research process. And what’s important to know is that lots of times that research process will stay exactly the same, maybe you’ll have someone else helping with it and so it will be able but more robust but those 3 or 4 steps will remain the same, but those inputs maybe always changing, maybe always improving those inputs, changing how the information is received from manual to automatic, changing the level of information you receive, adding new inputs.

And so it’s important to think about it as a system and having these major components of the system very stable and steady and robust where the inputs to the system are always being improved, you’re always casting out new inputs and making sure that you’re getting the best information possible. So some of the best institutional quality funds I have seen do that are constantly refining their inputs and improving them.

So that’s the short talk I wanted to give on investment research versus investment process, how changes can affect the perception of your firm as being institutional quality or not and some ideas on like what can be changed and maybe cannot be changed without setting off some red flags on the investor point of view. So thank you for your time here and we’ll see you again soon.

I hope that this video has provided you with some insight on the investment and research processes.

Your friends here at https://investmentcertifications.com

If you are starting a hedge fund or currently running a hedge fund then this might be one of the most valuable videos that you watch this year. In the following video, I cover process documentation, why it is important, who should be doing it and I will give an example of how it can work.

Video Transcript/Summary: The strategies and tips provided within this video module include:

Write down all of your high-level processes on a list.
Use a separate piece of paper or MS Word document to document the steps for each of the processes.
Analyze these steps and processes to see whether there are areas for improvement or unnecessary steps that should be removed to streamline your hedge fund business.
This will help you figure out whether your team and your resources are being used to their full potential.
“If you can’t document your system then you don’t know what you are doing.”

Transcript of Documenting Operational Hedge Fund Processes

Hello, this is Richard Wilson and right now we’re going to talk about process documentation, why it’s important, who should be doing it and just give a quick example of how it can work. And if you are starting a hedge fund or if you are running a hedge fund and you’re looking to improve its operations then this might be one of the most valuable videos that you watch this year.

Basically, process documentation allows you to see your business from a top-down view everything that’s it’s doing with more clarity probably than you ever have before. If you’re never done it this will provide a lot of value to your firm. The first thing you need to do is write down every important process that your firm undertakes, maybe you have an investment research process, maybe you have your general investment process, maybe you have a hiring process, how you hire more people to your team, it is an operational processes, some auditing processes, a compliance reporting process. Write down all of those major high-level processes. You should have at least 10 to 15 and probably not more than 30 and write down all those processes in a list.

Next, what you want to do is get a separate piece of paper for each process and you can use process documentation software if you’d like. You can use mind-mapping software if you’d like. But you can do these within Microsoft Word. It doesn’t take any special technology or software purchases to complete these tasks. If you open a Word document now, take those, say 20 business processes you have and document steps, 1 through 10 or 1 through 20 of what is done with each step of that process along the way.

Now, often times — I’ve done these for businesses that range from a million dollars of revenue or $500,000 of revenue to multibillion-dollar corporations and documenting these processes can be very challenging because lots of people operate in silos and sometimes even the CEO of a hedge fund or a company might not know how all the processes flow through the organization. So it’s very likely you’ll have to interview other people on your team or service providers to figure out exactly what all the steps are from soup to nuts, how things get done within your hedge fund.

What is important to do as an important process? So what you need to do is document all 20 or so of those business processes step-by-step so you can look at them and see if there’s any obvious areas of inefficiency improvement, maybe those steps, it can be taken out, maybe you’ve been meaning to improve your transparency if you’re a hedge fund or the institutional quality of it and some of these process if documented the right way can actually be shown to investors, to show them how you operate in a professional consistent manner.

It’s also important to have these in place so you can really analyze whether your team skills and abilities are actually being put to use in the best areas. I spoke with a hedge fund recently who documented all of their business processes and they ended up outsourcing 16 of the 18 business processes that they ran. They figured out that only two of them really pertain to their core competencies and their competitive advantage.

So integrate a story to show, if you’re starting a hedge fund or looking to improve your operational improvements this is something where you don’t need to go hire a consultant right now and spend $300 an hour paying them to document your processes, you should have your processes documented and this is somebody at a mid-level or a high-level within the organization can do. It does not take that much time to document them and it can give you some huge benefits that could lasts for a remainder that your firm or fund is in business.

So there’s one quote, I think it’s by Drucker that says “If you can’t document your system, you don’t know what you’re doing.” And then there’s another quote, I think it’s by Deming that says “If you can’t document what you’re doing, then you can’t improve it.” So it’s a great opportunity to both improve and make sure you know exactly what you’re doing and what you’re not doing by documenting all of your business processes and it’s something that I don’t see often done, so I think if you do this and you do it right and take away some lessons from it, it can be somewhat of a — you know one of those 10 things that gives your hedge fund a competitive advantage over others. So thank you for your time and we’ll see you again soon.

I recently spoke with a hedge fund manager who documented operational processes and ended up outsourcing 16 of the 18 processes that they ran. This shows how documenting operational hedge fund processes can help save your hedge fund money and make your fund more efficient.

Your friends here at https://investmentcertifications.com

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