Believing many pension fund and other institutional investors might appreciate guidance on evaluating prospective hedge fund managers, a group of experienced members of the Greenwich Roundtable Inc., Greenwich, Conn., published a 35-page best practices guide.
The guide provides a list of 200 questions that prospective investors should ask hedge fund managers, along with pertinent comments. The questions are broken into nine sections: strategy, investment, process and market opportunity; team and organization; fee structure and terms; risk management; management company, fund structure and asset base; quantitative review; operations and transparency; third parties; and intuition, judgment and experience.
A final section identifies the key documents investors should obtain and examine, including offering memorandum and subscription agreement, audited financial statements, a due diligence questionnaire, investment and other key personnel biographies, historical portfolios and prime brokerage agreements.
"We did a review of the literature and found there were approximately 2,000 pages of best practices available, but none written by investors for investors," said Steve McMenamin, who founded Greenwich Roundtable as an educational organization in 1995. "Most of them were very technical and focused on valuation."
As a result, the education committee of the Greenwich Roundtable decided to draw on the experience and knowledge of the organization's 120 regular members — mostly experienced hedge fund investors including pension fund, endowment and foundation executives — to develop a best practices document.