Retelling Hedge Fund Analysis by Frank J. Travers

I just finished reading “Hedge Fund Analysis: An In-Depth Guide to Evaluating Return Potential and Assessing Risks” by Frank J. Travers, and I want to break it down for you in a series of blog posts.

Why This Book

Hedge funds sound fancy. And intimidating. But here’s the thing - if you’re ever going to invest in one, or work with one, or just want to understand how the big money works, you need to know how to separate the good from the bad.

Frank J. Travers is a CFA who has spent years evaluating hedge funds. His book (ISBN: 978-1-118-17546-0, published by Wiley in 2012) walks you through the entire process of picking hedge funds. Not in a boring textbook way, but through a practical framework with a running case study.

What We’ll Cover

The book splits into two parts:

Part One: Background - What hedge funds are, where they came from, and why they matter. We’ll go through the colorful history of hedge funds and break down the different strategies they use.

Part Two: Due Diligence - This is the meat of the book. Travers walks through every step of evaluating a hedge fund, from the first phone call to the final scoring model. He uses a fictional hedge fund called “Fictional Capital Management” (FCM) as a case study throughout.

Here’s what the series looks like:

1. Book Introduction - Evaluating Hedge Funds
2. Chapter 1: Hedge Fund History (Part 1)
3. Chapter 1: Hedge Fund History (Part 2)
4. Chapter 2: The Hedge Fund Asset Class
5. Chapter 3: The Due Diligence Process
6. Chapter 4: Data Collection (Part 1)
7. Chapter 4: Data Collection (Part 2)
8. Chapter 5: Initial Interview (Part 1)
9. Chapter 5: Initial Interview (Part 2)
10. Chapter 6: Quantitative Analysis
11. Chapter 7: Portfolio Analysis (Part 1)
12. Chapter 7: Portfolio Analysis (Part 2)
13. Chapter 8: Onsite Interviews (Part 1)
14. Chapter 8: Onsite Interviews (Part 2)
15. Chapter 9: Operational Due Diligence (Part 1)
16. Chapter 9: Operational Due Diligence (Part 2)
17. Chapter 10: Risk Due Diligence
18. Chapter 11: Reference and Background Checks
19. Chapter 12: Scoring Model and Decision Making
20. Series Wrap-Up and Final Thoughts

Who Should Read This

If you’re curious about hedge funds but don’t want to read a 300-page finance book, this series is for you. I’m going to simplify the jargon, skip the fluff, and give you the key ideas in plain language.

Even if you never invest in a hedge fund, the due diligence framework Travers describes is useful for evaluating any investment manager. The questions he asks and the red flags he identifies apply way beyond hedge funds.

Let’s Get Started

The first post covers the book’s introduction where Travers lays out why we need a systematic way to evaluate hedge funds. There are somewhere between 8,000 and 10,000 hedge funds out there. How do you pick the right ones?

Next up: Book Introduction - Evaluating Hedge Funds