Below please find a definition of “Futures and Commodities Market”
Futures and Commodities Market: The futures and commodities markets are two vital parts of the investment world but represent two very different things altogether. Commodities markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. The futures market is an auction market in which participants buy and sell future contracts for delivery on a specified future date. Trading is carried on through open yelling and hand signals in a trading pit.
A commodities market serves the purpose of allowing two individuals to exchange the rights to goods without visual inspection. Commodity markets require the existence of agreed standards opposed to spot markets where delivery either takes place immediately, or with a minimum lag and normally involves visual inspection of the commodity or a sample of the commodity. A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today (buy now, pay later). Forward contracts have evolved and have been standardized into what we know today as futures contracts.
A futures contract is a type of derivative instrument, or financial contract, in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. If you buy a futures contract, you are basically agreeing to buy something that a seller has not yet produced for a set price. But participating in the futures market does not necessarily mean that you will be responsible for receiving or delivering large inventories of physical commodities – remember, buyers and sellers in the futures market primarily enter into futures contracts to hedge risk or speculate rather than to exchange physical goods.
That is why futures are used as financial instruments by not only producers and consumers but also speculators. The futures market allows buyers and sellers an opportunity to manage price risks for goods they will either need to purchase or sell at a later date. An example is Boeing utilizing the futures market to hedge against an increase in the cost of aluminum at a later date which is a major component in the manufacture of an aircraft (i.e. hedging).Unlike a stock, which represents equity in a company and can be held for a long time, if not indefinitely, futures contracts have finite lives.
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The Certified Hedge Fund Professional Designation is a 100% online training program that can be completed from anywhere in the world. In the following video, you will learn about the hedge fund industry and how obtaining a certificate from the CHP can help your career and boost your hedge fund IQ.
Video Transcript/Summary: The strategies and tips provided within this video module include:
The CHP program is the industry standard, number one most popular and trusted certification program built exclusively by and for hedge fund professionals as a continuing education and self improvement program. The program is split into two levels.
Level 1 of the CHP program gives participants a broad foundation of knowledge that allows then to gain specialised knowledge training in the hedge fund industry.
Level 2 allows participants to specialise within a single area of the hedge fund industry, including due diligence, marketing & sales and portfolio analytics. This way, you spend 100% of your time learning about things that are directly relevant to your position or a job you are preparing for.
Visit the website www.hedgefundcertification.com and click on the CHP advantage tab to see a list of the program advantages, such as the ability to quickly learn about hedge fund investment strategies, terms, ratios, fund of funds and trends in the industry. The program also boosts qualifications and provides the participant with a greater understanding of the language used within the industry.
The program enables participants to upgrade their resume and pedigree, through templates and offering insights into career, internship and job opportunities.
CHP participants include a wide range of personnel, ranging from professional to beginners.
To get a full in-depth overview of the program, visit the website and click on the tab listed as Program Details at the top of the page. Once you register, you will get access to www.hedgefundpremium.com, which is a exclusive video training facility with over 700 members, making it the most popular in the industry.
There is also a Testimonials page under the CHP Advantage tab. Over 1,000 professionals have now completed the program.
Transcript for Hedge Fund Certificate
Welcome to hedgefundcertification.com the website for the number one most trusted and well-known hedge fund certification program the Certified Hedge fund Professional CHP designation. The Certified Hedge fund Professional CHP designation is a two-level hedge fund training and certification program completed entirely online. CHP level 1 is focused on hedge fund fundamentals while those who complete CHP level 2 can then focus in on a single area of focus that they choose. The level 2 options include hedge fund portfolio analytics, hedge fund marketing and sales and hedge fund due diligence. The Certified Hedge fund Professional program is ran by the Hedge Fund Group. The largest hedge fund networking association in the industry where there were 40,000 member and the number one most popular and frequently visited network of educational hedge fund websites.
Now, if you go to top of our website to advantages and click on benefits, you can read the top 10 benefits of completing this program. There are dozens of benefits of completing the Certified Hedge fund Professional CHP designation program but many people joined the program because it helps them quickly learn more about hedge fund investment strategies, terms, ratios, fund to funds and trends in the industry. Some of the other benefits that have lead to over 1,000 professionals to complete this program is that it can help boost your hedge fund qualifications and resume, help you compete within the competitive hedge fund industry for jobs and allow you to speak the language of the industry.
You need help with your career finding an internship? Our team can provide you with the resume template, resume feedback, career coaching and networking strategies for this industry. Our program also offers many types of job placement services for candidates and alumni. We do all that we can to help our participants find the job that they desire. To read about these services and what is included, go to advantages at the top of the page again and click on job placement services A Certified Hedge fund Professional CHP participants, include hedge fund managers, traders, analysts, third party marketers, students, professors, attorneys, service providers, wealth managements and family office professionals and portfolio managers who want to learn more about hedge funds and certify their level of knowledge within the industry.
Now, if you go to the menu at the top of the website, click on program details. The Certified Hedge fund Professional CHP overview page will begin to load. This page provides the most in-depth overview of the program and you can see here that when you register for the program, you have access to the study guide which we’ll let you read and study the required readings and we’ll also get you access to the leading hedge fund video training platform, hedgefundpremium.com. Once you register for the program, you will get complete access to hedgefundpremium.com which currently has over 700 members and is by far the number one most popular hedge fund video training platform in the industry. The cost of this is included within your tuition payment.
If you go up to advantages at the top of the website and then click on participant testimonials, you can see what others are saying about the program. On this page, we have over a hundred quotes and videos from current and past members of the program. Today, we have over a thousand professionals complete this program and it continues to grow in popularity within the hedge fund industry. While part of this growth comes from the hedge fund group, a 40,000 plus person networking association which supports the designation, the main reason it has become popular within the hedge fund industry is that it is the only professional certification program constructed exclusively by and for hedge fund professionals.
If you want to learn more about the program, please click on the Certified Hedge fund Professional CHP logo at the top-left hand corner of the website and this will bring you back to our homepage. Scroll down on this page and type in your first name and e-mail address to get program alerts and updates on the program. This program size is limited during each session. So these alerts let you know when there is currently space available within the program. If you would like to register now for this 100% online hedge fund training and certification program, please click on the register at the top of the menu and submit your tuition payment on this page.
Due to the international nature of our training program, we accept tuition payments in many ways. This includes web-based credit and debit card payments, credit or debit card via our faqs registration form, personal or business checks via mail using our mail and registration form, Western Union or PayPal. Our team has worked hard to build the most valuable hedge fund training program for you. If you join, watch some of our video modules or view the books and decide that for any reason that this program is not for you, we will offer 100%, no questions asked refund policy. This policy is detailed here on our registration page. This way, you can try out the program at no risk and just to make sure that it’s valuable to you.
Thank you for visiting hedgefundcertification.com and taking the time to learn more about the Certified Hedge fund Professional CHP program.
Completing a hedge fund training program is a valuable investment in improving your knowledge and experience.
Since the Hedge Fund Group launched the Certified Hedge Fund Professional designation we have grown incredibly quickly with more than 1,200 participants spanning many different countries. A few of our participants wanted to share their experiences in the Certified Hedge Fund Professional program. Here is a selection of video quotes on the CHP designation.
First, a Level 1 Certified Hedge Fund Professional explains why the Certified Hedge Fund Professional program is in such high-demand and how it services a very specific area:
Transcript:
Hedge funds evoke strong reactions for most people. For some they represent the ills of financial capitalism. But for others they represent the very spirit of financial entrepreneurship. Either the twist, their importance into this financial world can hardly be understood.
However, despite their growing relevance and popularity, they’re not there as a subject in most of the business schools around the world. Consequently, most of the learning in this industry is on their job. However, going to that local secrecy and a lack of after demand, getting a job at a hedge fund is highly difficult. There are various ways in which aspirants try to secure a job at hedge fund. Some join the investment bonds, sell-side analysts hoping to jump into the boat as buy-side analyst at a hedge fund. Others, take internships as junior analyst or juniors traders hoping to be able to convert it into a full-time position in 6 months to one year. The competition ladder is really tough.
And that is where a program like CHP, Certified Hedge Fund Professional, are a tremendous value. Not only is the program highly prestigious but at the same time it provides us stakes with the in depth knowledge of the hedge fund industry along with the specialization in either of both for the analytics, due diligence or marketing. The standard of exam is really very high and the candidate has no choice but how to be tied to with the course material. And receiving the certificate that they can truly understand how the industry works and develop an analytical mindset in order to succeed in the industry.
A part from the knowledge the certificate also provides access to a large database of hedge fund professionals. This database is highly unmatched and it’s difficult to find similarity elsewhere. From a personal standpoint I work at a reputable hedge fund as a research analyst in Singapore and I can stay with conviction that rightly in CHP level 1 and CHP level 2, and becoming a certified hedge fund professional has provided me with the knowledge and he definition factor that is needed to succeed in this competitive industry in all my career.
A second Certified Hedge Fund Professional training participant explains her background, why she completed Level 1 of the CHP designation and the benefits that she received from the program:
Transcript:
Hello, this is Christine Zaremba. Thank you for tuning in to my 3-minute video presentation on my background, why I completed level 1 of the Certified Hedge Fund Professional designation and what benefits I’ve received by complete level 1 of the CHP designation.
I began my career as a receptionist at Diamondback Capital Management, a firm based in Stanford, Connecticut. I commuted there every day for a couple of weeks and eventually began utilizing my training at the New York City based hedge fund. I worked with hedge funds professionals from around the tri-state area at the newly acquired Diamondback Advisors New York, LLC. My primary obligations were to support equity analysts, traders, researchers, portfolio managers as well as our office management and our newly forming clientele. Taking on the role of two receptionists at this brand new construction site did not deter me from gearing my way towards the path to success.
The few months I worked at this hedge fund in 2008 is what inspired me to begin earning certified hedge fund professional designation about a year later. Here I gained insight into the backgrounds of the interesting people who worked at this hedge fund, either a few days a week or around the clock and I earned a great deal of respect from their satisfaction with their professions. Most of all, I enjoyed greeting new clients and representing the New York firm as the face of Diamondback New York.
I completed CHP level 1 because I knew relatively little about the hedge fund industry in this role. Since my preliminary understanding consisted solely of how each professional interacted with one another, I needed to acquire information into business practices in order to access information and current industry trends and pricing models. I utilized the Bloomberg trading platform only temporarily so I could not advance my trading skills beyond mere pricing inquiries.
The platform did however open my eyes to new exchanges in foreign markets and territories as well keeping me informed with financial news from around the world. Global currency is another evolving topic that I became enthusiastic about learning. One particular example I read on your website that I’d like to gain insight into is the aftereffects of the Diamondback Capital Management and Lehman Brothers deal. I heard the Diamondback lost $77M on the deal but nothing ever again.
At the time I worked for Diamondback they opened a new hedge fund in New York and they told me they were creating new funds in Connecticut surrounding their Stanford headquarters including Harbor Watch. What I’d like to know is what happens to the idea of creating new hedge funds when capital management firms’ performance fees are sacrificed at every existing location? And will professionals sacrifice their performance fees based on their rate of return at firms such as Diamondback even in the aftermath of such an occurrence?
The greatest benefit I’ve earned by completing the level 1 CHP designation is by far networking with hedge fund professionals. Not only our friends and extended family extremely enthusiastic about sharing their knowledge in hedge fund stories, new positions are becoming available as my initial desire which was to become an administrator at an alternative based asset hedge fund in the city evolved into keeping my career options open after taking this course. I find the additional marketing materials that the hedge fund group CHP designation provides to be extremely rewarding and valuable in terms of learning what works and what doesn’t work within the hedge fund industry.
For example, last Tuesday’s hedge fund career webinar, without this free real-time service providing program, I could not develop my resume, work with a free career tips, learn about service providing and hedge fund startups and gain a more thorough and an insightful understanding into exactly why I’m taking this course in the first place. Only one position in my life has brought me all three factors, an enthusiasm for passion, I was the best in world at it and I never made such a great profit within a short amount of time that I worked at Diamondback as I have at any other position.
I seek continuing on my path towards success by earning the respect of successful hedge fund professionals being very consistent with the quality of work that I produce and having the patience and positive attitude required to meet the demands of the hedge fund industry and firm business practices. I believe the instruction that those who can grow their specialized knowledge more quickly grow themselves as an asset and as a direct result are worth more. My path to success does consist of being proactive and taking risks, daily action and quick learning. I plan to uncover hidden opportunities that I didn’t know exist yet.
Thank you so much for providing service materials in addition to the Certified Hedge Fund Professional designation course materials. Have a great evening.
This participant explains how the Certified Hedge Fund Professional has complemented his fifteen years of experience in the alternative investment industry:
Transcript:
I am an independent financial adviser and a portfolio manager. I have an experience of more than 50 years in the alternative investment area. I have in my entire professional career worked with equity derivatives and designing alternative strategies with options. I advice what’s fair with clients to the level of alternative strategies in their portfolios, mainly working with their investment balance and with their private bankers advisors.
When I found out the CHP designation program, the first thing that I did was to have a look to recommend it to the others, and I found them very useful and practical. I have to say that the program is very analytic and it gives enough resources to go into the K factors of the alternative investments. One of the most interesting points of the program has been related with the different strategies of the hedge fund world. From my point view, I think that the program treat all the matters in a very doable way.
The alternative investment and the hedge fund industry require a competent knowledge. Firstly, it’s important to know about the wide classes of assets. Second, it is very important to understand about the different types of strategies on how they work. And finally, it is necessary to have a clear understanding about the new terms and terminology that involve the style of investment management. In some way, if you’re not able to analyze in depth the different strategies, is probably that you don’t understand how important it is to have a clear understanding.
My experience tell me that to build a portfolio it is necessary to analyze the respective return basis on the risk taken for the individual assets and it is necessary to evaluate the effect of that analysis into the total portfolio. In the absolute return industry it is a problem to treat any portfolio construction in a selfish manner. In this sense, I find this program very complete and absolutely focalized in the K factors, other times to understand the decision-taking process and to manage a portfolio, or other times to analyze the risk factors that involves in a trained decision. As far, as I am specializing in equity derivatives it has been an opportunity to have a global view of the alternative investment industry. And now, it has been very interesting to study in depth the other different strategies of the hedge fund world.
Therefore, I think that it has not been only an opportunity to improve my knowledge in all the areas of the study but definitely an opportunity to learn and to have a better understanding about the absolute return industry and I am sure that it will help me in the future together on my professional career.
The Certified Hedge Fund Professional designation program has really taken off since its inception in 2008. I hope that these videos have given you a better idea of the Certified Hedge Fund Professional designation.
It’s hard to predict the future of any industry, and the hedge fund industry changes especially quickly. In the following video, I offer my expectation for the future of the hedge fund industry.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Coming soon.
I hope that this video has given you a better understanding of what is a hedge fund.
Hedge funds are often confused for other types of funds like private equity funds, mutual funds and others. So, to clear up any confusion, I recorded the following video that provides a short, clear definition of what is a hedge fund.
Video Transcript/Summary: The strategies and tips provided within this video module include:
A hedge fund is a private investment partnership where the portfolio manager typically co-invests their own assets with the assets of the clients which they manage.
Hedge funds charge a management fee and performance fee.
Management fee is typically 2%.
Performance fee is typically 20%, but has been known to reach as high as 30%.
The prime difference between a hedge fund and that of other management funds is the fact they charge both the management and performance fee.
Transcript of What is a Hedge Fund?
Hello, this is Richard Wilson and today we’re going to define What is a Hedge Fund? Hedge Fund is a private investment partnership where the portfolio manager typically co-invests their own assets with their investor’s assets. They generally charge two types of fees: a Management Fee and a Performance Fee. Hedge funds charge management fees typically of 1% to 2% and they charge performance fees of generally 10% to 20%, some actually can be as much as 30%.
What really makes a hedge fund different from other types of investment funds is the fact that they charge both a management and a performance fee. Thank you.
I hope that this video has given you a better understanding of what exactly a hedge fund is.
The hedge fund industry is like an ecosystem and it’s important to understand how the various players in the industry interact. In order for you to better understand this system, I have recorded the following video on the hedge fund ecosystem.
Video Transcript/Summary: The strategies and tips provided within this video module include:
The hedge fund ecosystem refers to the different business partners in the hedge fund industry, of which 95% of existing hedge fund managers utilise the services of at least four. These five are (i) legal compliance firms, (ii) audit firms, (iii) prime brokerage firms, (iv) fund administration firms and (v) third party marketing firms.
Legal compliance firms are used when you are setting up your fund, which is a detailed process that can be quite expensive. In order to do this right, you have to retain the services of someone who charges usually $15-$40k but sometimes $60-$80k. Once the firm is launched, they manage compliance reporting, legal assistance, contract and other ongoing resources.
Accounting firms will come in and do an independent assessment or help with financial controls or prepare for an audit. An auditing firm will carry out their audits quarterly and annually.
Prime brokerage often refers to the service provider within a large investment bank and provides custody, trading and leverage to hedge fund managers. Most hedge funds work with a prime brokerage so for new hedge funds, particular focus and attention is emphasised here. We have set up www.primebrokerageguide.com as an insightful resource.
Fund administration firm will do third party verification of wire transfers, help with operations outsourcing, do day-to-day account reconciliation, book keeping and all other operation processes. It is a growing trend in the industry to retain the services of a fund administration firm to reduce operational and fraud risks. More information can be got at www.fundadministration.org.
Third party marketers are an independent capital raiser for the hedge fund. They often work for 2-5 years as a time, acting as a consultant outside of the firm. A third party capital marketer will typically work for a multiple of hedge funds at any one time, adopting various different strategies. Funds will pay him/her a retainer and a percentage of funds raised. This percentage is usually 20% for as long as the funds raised remains within the fund. To learn more, visit www.thirdpartymarketing.com.
Due diligence on all of the five providers within the ecosystem should be carried out, meeting with at least three from each before making a final decision, rather than making an emotional decision after meeting just one.
Hedge funds often fail or thrive based on the relationships developed in the hedge fund ecosystem.
Transcript for Hedge Fund Ecosystem
Hello, this is Richard Wilson and today we’re going to go over the hedge fund ecosystem. Basically, the different service providers and business partners that are basically included in the successful life of a business ran as a hedge fund, and that’s one thing that lost of hedge fund managers I think sometimes look over when they launch their fund, they’re really starting a small business and all those things that need to be in place for in a business, need to be in place for a hedge fund.
So if you’re looking to start a hedge fund, if you’re looking to enter the hedge fund industry or if you’re looking at different paths for how you could advance your career in hedge funds, this maybe one of the most important videos you want this year to just kind of cover the different business partners that hedge managers have and what I call a hedge fund ecosystem.
So first of, you should know there’s 5 main business partners that a hedge fund works with. And I would say over 95% of the 1,000 hedge fund managers I’ve worked with use all of these partners or at least 4 out of 5 and I’ll go over that here in just one minute. The 5 business partners are legal compliance firms, auditing firms, prime brokerage firms, fund administration firms, and third-party marketers. Now, I’m going to go over the definition of each and how and when they’re used.
Legal compliance firms are obviously used when you form your fund. It can be relatively expensive to form a hedge fund due to the number of provisions and partnership clauses and gaining clauses and a high water mark details. There’s just so many different things that go into creating a contract which is going to be flexible and robust for the operation of your funds the next 5, 7 or 20 years that you really want to do it right, and to do it right means you have to retain the services of someone who is usually is $15K to $40K or sometimes $60K to $80K depending on the structure of your fund. After you launch your fund, ongoing compliance reporting, ongoing legal assistance, just standard contracts for employees, nondisclosure, non-compete, that’s usually an ongoing resources using a lawyer or an attorney you can go to for the life of your fund.
Next is auditing and accounting firms. Sometimes you’ll have an accounting firm come in and do an independent assessment or help you improve financial controls as a consultant or it might just help you prepare for an audit. The auditing firm completes an audit either quarterly or annually. There’s some people, they may have some monthly activities but generally the big audits are done quarterly and annually. And if you’re an audit professional working in another industry you should know that a hedge fund auditing business is large and growing, more funds are being audited more frequently with more robust reporting each quarter which their investors get to see.
Prime brokerage is the space where a service provider usually inside of a large investment bank provides custody trading and leverage to a hedge managers and that they’re able to help managers leverage their assets and custody it within the third-party institution which helps improve the trust that investors have in their business. Often times a higher quality, the prime brokerage firm, the better it is for the hedge fund manager and almost every hedge fund I know works with a prime brokerage firm. It’s kind of expected, so this is one thing where if you’re starting a hedge fund you definitely want to seek out prime brokers and if you are looking to learn more about prime brokerage we actually have a website, primebrokerageguide.com which is a great website dedicated completely to prime brokerage.
Next, one business partner of hedge funds is a fund administration firm. This is a firm which will do third-party verification of wire transfers still help you with operations outsourcing day to day or month to month account reconciliation, accounting, bookkeeping. Basically all of the operational infrastructures or processes that your hedge fund is completing, almost all of those could be outsourced to a fund administration firm, they make sure they’re done by experts in those areas, they’re done consistently and professionally and as another source of operational improvement which investors are sometimes demanding.
I heard from a hedge fund just last quarter that they were on the board of another hedge fund and one of the advisers was — and he was requiring that his hedge fund retains a fund administration firm, an independent fund administrator or he would leave their board because he just didn’t want to have any of those operational risks or a possible fraud risk. It can go on when you don’t have an independent fund administrator. So it’s another point of assurance for investors to have one and it’s a growing trend in the industry to retain one.
The last business partner which we’re going to talk about is a third-party marketer which is an independent capital raiser. Third-party marketers often work for 2 to 5 years at a time. They’re outside of the fund and they act as a consultant who raises capital for the fund. So one third-party marketer, one professional might market for different hedge funds at once, usually they have different strategies and he might focus on something like wealth management firms or he could go all investor channels. But he is trying to raise capital on behalf of these funds and typically those funds are paying him a retainer plus a percentage of fees raise. So the typically rate in the industry is to charge some sort of fair retainer ongoing but then also charge a 20% of fees on assets raised.
So if you raise $10M, as long as that money is invested in the hedge fund, that third-party marketer should receive 20% of the fees earned off of that accounts. That’s different in every situation but that’s just kind of a template guideline for how those relationships work. And if you want to learn more about fund administration, please see fundadministration.org. If you want to learn more about third-party marketing, please see thirdpartymarketing.com. Both of those websites have hundreds of articles on those unique niche topics. If you’re looking to hire somebody in one of these areas, those websites will be helpful or this video might help if you’re looking to work in one of those areas, those websites might be helpful.
It’s good to do a thorough due diligence obviously on these professionals before you meet with them. Everybody is busy so it can be very tempting to meet with one. You know their reporting looks great, they seem very nice, they seem very nice, they were helpful on the phone, you know “Let’s go with them. Let’s just move on to the next task.” But I really think that whether you’re looking to work for someone or hire them as your service provider even more importantly, take the time to interview at least 3 different service providers who are not connected in any way, within each one of these niches. So interview 3 prime brokerage firms, interview 3 third-party marketers at least and have a short 1 to 2-page, 5-page due diligence questionnaire for them.
So have them complete information related to their references, their number of clients, their stability as a business, their niche expertise, their abilities, what they’ll be doing for you every week, every quarter, every month and exactly what that will cost. It’s good to have all that information upfront so you can compare kind of apples and apples with other organizations and make it less emotional and exciting or time-saving type decision because this is really critical. I’ve seen businesses in the hedge fund industry fail or thrive based on these 5 relationships. So it could be, you know choosing your business partners or it could be one of the top 3 most important things you ever do for your hedge fund. So it’s important not to rush it and to understand what you’re getting into.
So I hope this talk kind of helped clear it up. The main players in the hedge fund ecosystem, I hope it kind of makes it clear why it’s important to understand them and carefully choose them if you’re looking to work with them for any reason and I just want to thank you for your time here today. Thanks.
I hope that this video has given you a better understanding of the hedge fund ecosystem.
Service providers can make or break a hedge fund and the process by which you select a hedge fund is very important to working with the right service providers. The following video provides hedge fund managers with some strategies for selecting top quality service providers.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Hedge fund startups are often unaware of how important hedge fund service providers are to their fund.
Consider requiring a due diligence questionnaire for your service providers.
A 2-3 page DDQ should allow you to better understand the service provider and how that firm operates.
Be wary of service providers that are not capable of handling a client of your size.
Implement a detailed process for hiring and working with service providers.
Transcript for Hedge Fund Service Providers
Hello, this is Richard Wilson and today we’re going to talk about the importance of service providers which I often refer to as business partners to your hedge fund business. Many people that we interviewed from my recent book, “The Hedge Fund Book” mentioned that they underestimated the importance of service providers when they started their fund. And I know funds that have gone out of business due to having a service provider who either stops offering the service or didn’t offer what was promised, and it could be an area that definitely can make or break your business.
So I just wanted to stress the importance of that and suggest that hedge fund managers should have a service provider Due Diligence Questionnaire that is constantly evolving just like an institutional consultant won’t invest their client’s money in a hedge which doesn’t meet some sort of initial checkbox mentality process. You should have the same system for your service providers to ensure that decision are being made based on industry friends, emotional decisions or based just on who has the best sales ability, so it’s different from who’s going to have the best functional support systems for your business.
So I think that having a — just to start with a 2 to 3-page DDQ, a Due Diligence Questionnaire which ask them for contact details, for 3 or 4 referrals, which ask them about the experience of each of the team members that you will actually be working with not just the people who started the firm but the people who actually be coordinating with and who are actually be doing the work for your fund at that service provider. You should have all of their details up front. You should have numbers on how many current clients and past clients they have served in the investment industry and the hedge fund industry specifically. It would be much different working for mutual funds then suddenly switches their offer or for hedge funds that never done it before, you don’t want to be part of that learning curve. You can work with somebody at the same price who did 200 hedge funds last year for legal formation works.
So you should be very careful about that, what people say their experience is versus how specific is that really to what you need them to do for you. Next, you should also have some sort of process for checking the reputation of the firm, speak with their competitors, speak with other people in the industry, speak with other fund managers that you know. Some service providers are very responsive and provide great service, others are overwhelmed, others do the bait and switch and sell you with the high pedigree person and then you get a junior person who’s never done the work before actually completing the work.
So it’s important to have this DDQ in hand and make sure that you hire service providers consistently. And also make sure that there’s some written documentation of what was promised and that can be written into a contractor or a service later and just add some real transparency and long-term kind of systems planning for your hedge fund as a business. So if you ever step away from the business or the business grows in multiple areas, this process can be used by someone else on your team to consistently hire highly experienced service providers and partners whether you’re there to tell them what to ask or evaluate the situation this allows you to outsource this to someone else on your team.
So this is something that I consider kind of a best practice and this becomes very strong. It could be something you even show your potential investors that before you hire anyone, we take them through this 20-step or this 3-step process which includes the 20 point Due Diligence Questionnaire and that’s just like one of 20 things that you can mention in part of being an institutional quality hedge fun. So I hope this short talk on service providers and the importance of a DDQ for service providers helped. Thank you for joining us in this video and we’ll see you again soon. Thanks.
I hope that this video has been a helpful collection of strategies for working with service providers.
A couple of months ago, I served as the opening day chairman for the GAIM conference in Monaco and gave a speech on capital raising. This is one of the largest hedge fund events of the year and the fact that it is held in Monaco is no coincidence. Monaco has a quickly expanding hedge fund sector and is home to many wealthy investors. In the following video recorded in Monaco, I talk about the hedge fund industry in Monaco.
Video Transcript/Summary: The strategies and tips provided within this video module include:
The biggest and oldest hedge fund conference in Europe takes place in Monaco.
There are many family offices and investors based in Monaco.
Monaco is a hub for ultra-high net worth individuals even more so than other European cities.
There are very low taxes in Monaco making it very attractive.
Monaco is outside the scope EU Hedge Fund Directive because it does not belong to the European Union.
There are relatively few hedge funds based in Monaco, but there are many managers and investors that live there.
Transcript for Hedge Funds in Monaco
Hello, this is Richard Wilson. I want to share with you a short video on the state of the hedge fund industry here in Monaco. I just got done speaking at the Game 2011 Hedge Fund Conference. It’s the biggest and oldest hedge fund conference in all of Europe. There’s about 800 people there, 300 investors, about 500 fund managers of different types and it’s a great conference. A lot of it is based on capital-raising to get an advice directly from investors. And I learned while meeting with family offices that are based here in Monaco and going to the conference and being here for a week, a lot about the cities. I just wanted to share with you what the hedge fund industry is like here in case you wanted to possibly move your hedge fund to Monaco or try to raise capital for Monaco. I thought it might be helpful just to share what my experience has been here in the city.
So first of, this is a hub in Europe for ultra-high net worth individuals. I say ultra-high net worth instead of high net worth because the cheapest studio condo here cost about 1.2 million Euros or about 1.6M, 1.7 million US dollars to buy and that’s a tiny, tiny little condo. So you have to have a lot of money to buy a place here. The result is that a lot of family offices, people who have sold businesses, people that run large multinational businesses and like I mentioned single family offices are based here because there is zero taxation or very little taxation based on how you’re classified by the Monaco government.
But most people pays Euro taxes or 5% taxes by living here, while in most other places you pay a lot higher taxes, like Switzerland. But Monaco is not part of the EU so they get to avoid the recent directive which came out, which affects EU hedge fund regulation, that’s another advantage for them. And I think the taxes across the world in first world countries are going to be raised and that places like this, Singapore, Switzerland, other tax haven areas are actually — you know going to greatly increase and people are going to realize they could run their fund or live in many places around the world as the world comes easier to move around in, to get more connected and these hubs are just going to grow more and more popular.
What I found out that’s surprising here is that although there’s not many hedge funds based here, there are just a lot of investors here and hedge funds loves to come here obviously because it’s so central in Europe and they can meet with investors so easily. From here you could easily get to Paris, you could easily get to Switzerland, you could easily get to Luxemburg or Italy obviously. It’s right next door to Italy. So it’s a pretty good location for being in when you’re capital raising, you know city targets.
A couple other interesting facts, is that Monaco is only 0.7 square miles. It’s the smallest city in the world except for Vatican City. Another thing that I didn’t know before I came here was that basically, since 1996 hedge funds have been focusing more on being based in Monaco but the main reason they have and opened up offices here is that their operational cost would way up. If you’re hiring somebody who has 5 years or 7 years in capital raising experience or risk management experience, their knowledge might be really valuable and your hedge fund might be making a lot of money, but you’re going to have to pay them twice as much as if you lived in a Geneva or Zurich or some other cities such London or even New York because that’s how much higher the real estate cost are here.
So the result is that lost of hedge funds come through the city, people come here every year for a Game obviously like I was this week. But it’s really more of an investor hub than an active hedge fund manager hub unless the hedge fund manager has already cashed out or has gotten to a huge size and they’re just here for a part of the year.
So I hope you enjoyed this video on Monaco. It’s a great place to come visit, great place for your business, great place if you’re looking to connect with investors and it’s a great place to come check out Game if you have time one year. Thanks for joining me. It’s Richard Wilson and we’ll see you again next time.
The hedge fund industry in Monaco is quickly expanding because of its huge reach for hedge fund investors and I expect hedge funds to continue to focus their capital raising efforts on Monaco.
In recent years since the financial crisis and scandals like the Bernard Madoff fraud, transparency has become even more important to investors. Now more than ever, investors are looking for hedge funds of an institutional quality. In the following video, I discuss the importance of institutionalization and transparency as well as how it relates to running a hedge fund. This video will be very valuable to hedge fund managers looking to improve their operations.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Transparency is basically operating and investing within your portfolio so that investors have near 100% understanding of what you are doing and how your hedge fund operates.
Reporting to investors should be done quickly and consistently at least once a quarter.
Establish a very thorough process for hiring.
Be as transparent to investors as possible in your investment process.
Be pro-active in your transparency efforts.
Transcript for Hedge Fund Transparency
Hello, this is Richard Wilson and today we’re going to talk about institutionalization and specifically the importance of transparency, what that means and how to really get some transparent things in place for your hedge fund business. So first of, transparency is basically operating and investing within your hedge fund portfolio in a way that investors have almost 100% see-through of your decision-making processes, your research, your risk management and your investment process and even your team and what they’re doing every day.
So let’s give some examples here and they could really mean. First is risk reporting. Lots of hedge funds have T plus 2 or you know a day or two delayed at risk reporting, somehow same day position risk reporting. Someone may do monthly or quarterly detailed risk reports. It’s important that they’re done consistently, usually the more often the better. Usually you can enable them with technology so that they’re done faster and with less individual manual levels of effort. And on a consistent basis it’s good to send this to your investors proactively, maybe once a month, once a quarter at least, it’s being sent to them so they know that you know what your risk positions are at all times.
And one thing that goes along with that is that if you get in the habit of acting in the right ways in terms of operating in the right ways, operating about looking at intraday risk positions then that’s something you can produce for an investor. And the largest of investors are the ones that are going to do the most checks on how your businesses ran. And one other test might be, if they ask for a risk report, how many days does it take for you to produce that? Does it take a month? Do you say well maybe until the quarter? You know once you response maybe you can provide it back to them in an hour or the same day or the next morning, that’s a world difference from it taking two weeks for a fund that has never had to do that before or that doesn’t have the technology in place to do produce that same report.
So risk reporting is a good example of being transparent. Other transparency could be the very thorough process through which you hire somebody. Everybody knows that a pedigree is one of the most important things for attracting new investors but how many hedge funds when they go and do a due diligence call and talk about not only their investment process but their pedigree investment process. How do they hire very talented experienced professionals? How do they attract more talent per dollar spent than any other competitors? Is it through equity sharing? Is it through vested benefits? Is it through vested profit sharing? Is it through building a strategic board and then slowing hiring on some of those professionals?
I think showing how your business as a hedge fund is advanced enough that you thought through these things and you have a documented, somewhat rigid process for making sure that you had grade A talent for your team is something that the biggest institutional investors will really appreciate because a larger — the more money they have to invest, the larger their organization potentially is and they might have similar systems in place or maybe they realize they should have such systems in place and they’ll respect you for having it already in place.
So I think that that’s another good example, something transparent that you can share. Another thing that ran across most often with emerging hedge fund managers is that they believe that they need to be so secretive. They cannot even share their investment process. And there was a study that came out in 2007 that showed that 86% of institutional investors will not invest in something unless they understand the investment and the investment process behind it. And so I think it is very important that you’re as transparent as possible of your investment process. Maybe your investment process has 4 steps and maybe each of those 4 steps has 5 parts. So maybe what you do is you explain the 4 steps and you provide a summary of those 5 parts.
If you provide some detail but not so much as somebody could copy every little step of your investment process or if your magic sauce is really your research in the inputs under your research system, maybe you share all 20 points of that research, of that investment process and that way you’re more transparent to your competitors, your investors understand exactly all of the different checks you’re doing and processes your following consistently and that can come up stronger than somebody who has 2 percentage a year performance better than yours or even a longer track record but they’re not as transparent.
So that’s another example. Being very transparent on your investment process is another great practical, you know something that you can take away today and start using it as an example of how to be more transparent and how you operate. So in every case within your business, if you look at the 18 or the 12 business functions or strong points about your firm and look at each one and how transparent you are, how transparent your competitors are and how far you could push that line of transparency, I think you’d be rewarded for being proactively very transparent. I agree, there may be an area or two where you want to be less than 100% transparent, or possibly one or two of your reports may only go to investors who have a certain criteria of being the very highly interested or qualified investor.
But in most cases it just kind of benefit you to be more transparent than most or all of your competitors if possible within every area of your business. On some level now, after the Madoff scam there is actually a sense of distrust. At some level nobody trusts anybody. There’s always friends and business that helps smooth things along and get things done quicker, but then when it moves up the chain of command there’s almost always more regimented controls now to have everything checked, due diligence done and things compared and revisited more frequently.
So it’s important to be transparent. I don’t see that trend reversing and you actually make everything smoother for yourself if you’re just transparent upfront. They’ll be less questions and less scrambling to come up with answers and reports down the road when those questions do come up. So thank you for your time today and I hope you enjoyed this video. We’ll see you next time.
Transparency has perhaps never been as appreciated by investors as it is today. I believe that you will be rewarded for your efforts at increasing transparency and communication with investors.
Futures and Commodities Market: The futures and commodities markets are two vital parts of the investment world but represent two very different things altogether. Commodities markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. The futures market is an auction market in which participants buy and sell future contracts for delivery on a specified future date. Trading is carried on through open yelling and hand signals in a trading pit.
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