This afternoon I attended the second annual hedge fund symposium hosted by Deloitte. If you are like me, a busy business person, you want to make sure your time is well spent, and well, it’s time well spent.
The key take-away comes from the last panel discussion: evaluating your business strategy across the life cycle of a hedge fund. The panels, including fund managers and asset allocators, brought up some good points on questions investors should have asked:
1. Financial health of the management company.
Many investors are concerned about the hedge fund itself – the risk factors, performance, infrastructure etc. Very few look at the well-being of the management company of the hedge fund. Are the capital funding and management fee sufficient to keep the operation going regardless of the fund performance?
<edit on 11/18/2011: this concern is mostly towards emerging managers who haven’t built the pool of wealth yet, for more mature managers, succession planning is more of a concern. read our other blog article on this topic based on investors discussion at EY hedge fund symposium>
2. The action plan of the fund in the foreseeable future.
Of course, you can’t foresee far out, and the execution of certain plans (such as upgrading your infrastructure and service providers) can’t be too early or too late to be financially responsible, but the fund managers should have them thought out in their minds at the early stage.
3. How does the firm incentivize its staff and retain key employees.
Whether it’s in the form of bonus or equity ownership or others, the firm needs to find an effective way to keep its best and true asset in house – the people who are making the investment decisions and generating the alpha.
Fund manager, hope you are not losing sleep over these questions. Good night, everyone.
