Due diligence questions to interview hedge funds ask, allocation, management, interview

dreampak

Could anyone who works in institutional management share some of the specific questions or checklists they like to ask potential third party fund managers when they are interviewing them?  The endowment I work for will be interviewing 4 hedge fund managers, to choose one among them for a small allocation, and I don’t want it to be too obvious that I haven’t interviewed a manager before.
Thanks!

pimpineasy

It depends on who are you seeing, what strategy are they pitching. There are specific questions you ask based on how much you know and what do you want to know.
If you’re keen to find out the “business side”, then standard questions such as client breakdown, cashflow, PM pedigree and reason for leaving the previous firm, skin in the game, org chart, risk management process, reporting line etc.
if you’re keen to find out the “investment side”. You ask a multi-strategy guy on how they rotate sectors. With global macro, what’s their bread and butter, how did they perform last year, what did they learn and how are they positioned for this year. WIth long/short, just ask how do they make money on their short. With relative value, ask how the arb trade work and whether it will still work.
As you can probably gauge, it all depends on how much you know and what do you want to know.

scr879

dvictr wrote:
i want to know if the manager really has alpha or is just buying SPY and calling it global macro.
Ouch!  That hurts!  ;-)

sabre

Ask for the PPM..should have quite a bit of infomration on there…
You’re looking at operational risk, liquidity of fund (asset base), trading style/strat….mgt fees inc gates, NAV growth, sharpe ratio, quality of the investor pool.. are there lockins, redemption fees?  Although I come from a risk background so my questions are always risk focused.

rohitdoshi

there is a checklist in the book “handbook of alternative assets, mark anson”. if you read the chapter on DD and do this interview, you might just get promoted.
aside from the regulatory information, the point is to learn about the investment process, style/strategy, and what makes the manager so smart- having a CFA/ top 5 mba isn’t it. personally, analyzing the performance data/ historical returns is more important to me.
i want to know if the manager really has alpha or is just buying SPY and calling it global macro.