This is the final chapter. Demaria wraps up the whole book by looking forward. Where is private equity going? What are the big risks ahead? And could the industry actually destroy itself by being too successful? Let’s go through it.
Chapter 6 of The Hedge Fund Book is all about due diligence. Basically, it is the homework you do before handing someone your money. And after Madoff, after LTCM, after Bayou, everyone agrees on one thing. That homework was not being done properly. This chapter shows what good due diligence looks like and what happens when people skip it.
At this point in the book, we have collected the basic info from the hedge fund manager, done an initial review, and had a phone interview. Now comes the numbers part. Chapter 6 of “Hedge Fund Analysis” by Frank J. Travers is about crunching performance data, and it is packed with formulas and statistics.
I just finished reading “Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias” by Tim Richards. And I need to talk about it.
In the second half of Chapter 10, Larry Harris explores the economics of being “smart.” If you’re an informed trader, your life is a constant battle against competition and the paradox of your own success.
So I just finished reading “Trading and Exchanges: Market Microstructure for Practitioners” by Larry Harris. And I have thoughts.
This is one of those books that’s been sitting on finance reading lists for years. Published in 2003 by Oxford University Press (ISBN: 0-19-514470-8), it’s basically the textbook on how markets actually work. Not the “buy low sell high” stuff you see on social media. The real mechanics. How orders flow, why spreads exist, what dealers actually do, and why some traders consistently lose money to others.
Every industry has a chapter it would rather skip. For private equity, this is that chapter. Demaria titles it “Private Equity and Ethics: A Culture Clash,” and he does not hold back. Fraud, job destruction, fake philanthropy, and the long fight for transparency. Let’s go through it.
In Part 1, we watched Travers set up and begin his initial phone call with Jaime Williams from Fictional Capital Management. Now we pick up where we left off, with the conversation getting into the really meaty stuff: asset growth, liquidity, short selling, risk management, and the all-important question of what makes this fund special.
Chapter 5 of “The Hedge Fund Book” opens with a Muhammad Ali quote about suffering through training to become a champion. That sets the tone perfectly. Starting a hedge fund is not glamorous. It’s years of grinding before anything clicks.
If the market is a giant statistical calculator (as Larry Harris calls it), then Informed Traders are the data scientists providing the inputs. In Chapter 10, we look at the people who actually do the work to figure out what things are worth.