Book: Financial Risk Manager Handbook Plus Test Bank
Author: Philippe Jorion
ISBN: 978-0-470-90401-5
The second half of Chapter 30 covers risks that standard VaR misses. These are the risks that killed LTCM, blew up quant funds in August 2007, and still trip up investors who focus only on monthly NAV reports.
Book: Financial Risk Manager Handbook Plus Test Bank
Author: Philippe Jorion
ISBN: 978-0-470-90401-5
Hedge funds are the wild cousins of mutual funds. Chapter 30’s first half explains what they are, how big the industry got, and why risk management tools from bank trading desks migrated to Greenwich and Mayfair.
Book: Structured Finance and Collateralized Debt Obligations | Author: Janet M. Tavakoli | Publisher: John Wiley & Sons (2008) | ISBN: 978-0-470-44344-6
Book: Structured Finance and Collateralized-Debt-Obligations | Author: Janet M. Tavakoli | Publisher: John Wiley & Sons (2008) | ISBN: 978-0-470-44344-6
Book: Structured Finance and Insurance: The ART of Managing Capital and Risk Author: Christopher L. Culp Publisher: Wiley Finance, 2006 ISBN: 978-0-471-70631-1
Book: Structured Finance and Collateralized Debt Obligations | Author: Janet M. Tavakoli | Publisher: John Wiley & Sons (2008) | ISBN: 978-0-470-44344-6
So we made it through all 12 chapters of Kevin Mirabile’s “Hedge Fund Investing.” Here’s what stuck with me after going through the whole thing.
In the first part of Chapter 12, we covered fund administrators and prime brokers. Now we get into the other critical service providers: auditors, lawyers, and technology firms. These are less flashy but just as important. A hedge fund without a good auditor is like a restaurant without a health inspector. Maybe everything is fine. Maybe you don’t want to know.
When you think about hedge funds, you think about traders and portfolio managers. Maybe a genius founder in a corner office making billion-dollar bets. But behind every hedge fund is a small army of service providers doing work that nobody talks about. Chapter 12 is about those people.
Part 1 covered how to prepare for due diligence and evaluate a fund’s investment process. Now comes the hard stuff. Risk management, operations, the business model, and the part nobody wants to think about: fraud.
Due diligence. Sounds boring. But this is the chapter where you learn how to not lose your money to the next Madoff. So maybe pay attention.
Why do hedge fund managers charge so much? And does paying more actually get you better results? Chapter 10 of Mirabile’s book tackles this. Turns out, the way you structure a fund’s fees and terms has a real effect on how the manager behaves. And how the manager behaves determines your returns.
You would think measuring how well a hedge fund did is simple. Fund went up 10%? Great. Down 3%? Bad. Done.
So you want diversified hedge fund exposure but don’t want to pick individual managers yourself. Chapter 8 covers your two main options: multistrategy funds and funds of hedge funds (FoF). There is also a third option, index replication, that has been gaining traction. Same goal, very different execution. Let’s break it down.
Convertible arbitrage sounds complicated. And honestly, the mechanics are not trivial. But the core idea is surprisingly simple. You buy a convertible bond. You short the stock of the same company. Then you try to profit from the difference.
This chapter is about bond nerds. Specifically, hedge fund managers who make money by finding small price differences between bonds that should be priced the same (or very close). The strategies are called fixed income relative value and credit arbitrage. They sound boring. But the math behind them is wild.
In Part 1 we covered how long/short equity funds work, the five strategy types, and how they construct portfolios. Now let’s look at the business side: fees, redemptions, historical performance, and how investors evaluate these managers.
Long/short equity is the most popular hedge fund strategy. It’s also the oldest. The very first hedge fund, started by Alfred Winslow Jones in 1949, was a long/short equity fund. He turned $100,000 into $4.8 million over 20 years. People noticed. By 1968, the SEC counted 140 funds copying his approach.
Global macro is the strategy people think of when they hear “hedge fund.” Big bets on currencies. Shorting entire economies. George Soros breaking the Bank of England. That kind of thing.
Chapter 3 is basically a timeline of the hedge fund industry. How it started small, got huge, almost died in 2008, and came back. If you want to understand where hedge funds are today, you need to know how they got here.
In Part 1 we covered the research behind hedge fund investing and how rich people, family offices, and endowments got into the game. Now let’s talk about the really big money: pension plans, sovereign wealth funds, and funds of funds. Plus, if hedge funds are so great, why doesn’t everyone just put 100% of their money there?
Hedge funds started back in the 1960s when Alfred Winslow Jones launched the first one. It was weird at the time because he used leverage and short selling. Nobody else was doing that. But the industry stayed small until the late 1980s.
In Part 1 we covered what alternative investments are and how hedge funds are structured. Now we get into the fun stuff. How do hedge funds actually make money? What strategies do they use? And how does leverage turn a 10% market gain into a 23% return?
Chapter 1 opens with a warning. If you’re new to hedge funds, you will get overwhelmed. There’s a lot of terminology. There’s a lot of moving pieces. But Mirabile does a good job laying the foundation here. Let’s walk through it.
So I picked up this book called Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance by Kevin R. Mirabile. And honestly, it’s one of those books that sounds intimidating but actually breaks things down pretty well.
We made it. Fifteen posts, twelve chapters, and one very thorough book about hedge fund compliance. If you stuck with this series from beginning to end, thank you. That was a long ride.
This is the last real chapter. Scharfman wraps up the book by looking ahead. What trends are shaping hedge fund compliance going forward? What should people in the industry worry about?
This is Part 2 of Chapter 11. If you missed Part 1 about compliance consulting, start there. This half covers the interview with Vinod Paul from Eze Castle Integration. The focus here is cybersecurity, cloud computing, data protection, and disaster recovery for hedge funds.
Chapter 11 is different from everything before it. Instead of explaining rules and frameworks, Scharfman sits down with real people who do compliance work every day. He interviews two compliance service providers and lets them talk about what they actually see in the field.
Chapter 10 of Scharfman’s book is one of the most practical chapters so far. Instead of explaining rules or regulations, it focuses on six real mistakes hedge funds make with their compliance programs. Let me walk you through all six.
Chapter 9 is where Scharfman stops talking theory and starts showing what compliance looks like in practice. He gives us two hypothetical scenarios (basically role-play conversations) and two real SEC enforcement cases. Each one teaches a lesson about what can go wrong when compliance is treated as an afterthought.
Up until now in this series, we talked about compliance from the hedge fund’s point of view. How they build programs, hire people, write policies. Chapter 8 flips the script. Now we look at it from the investor side. How do investors figure out if a fund’s compliance is actually good?
Previous chapters talked about the people and systems behind hedge fund compliance. Chapter 7 shifts focus to paperwork. And yes, I know paperwork sounds boring. But here’s the thing: without proper documentation, a hedge fund’s compliance program basically does not exist. At least not in the eyes of regulators.
So far in this series we talked about in-house compliance. The people inside a hedge fund who make sure rules are followed. But here’s the thing. Sometimes that’s not enough. Sometimes you need to call in outside help.
Technology runs everything these days. Hedge funds are no different. Chapter 5 of Scharfman’s book looks at how hedge funds use technology specifically for compliance. Not for trading. Not for making money. For following the rules and keeping records.
In the last chapter we talked about the Chief Compliance Officer. The person in charge. But here’s the thing. One person can’t do everything. Even the best CCO needs a team. Chapter 4 is about how that team gets built and how the whole thing works together.
Every hedge fund needs someone who keeps things legal. That person is the Chief Compliance Officer, or CCO. Chapter 3 of Jason Scharfman’s book breaks down what a CCO actually does, what qualifications they need, and how the whole regulatory reporting process works.
Chapter 2 of Scharfman’s book is all about regulation. Who makes the rules for hedge funds? Who enforces them? And what happens when the regulators actually show up at your door? Let’s break it down.
Let’s start with the basics. What does “compliance” even mean? In simple words, compliance is how an organization follows the rules. Every industry has rules. Healthcare, construction, science, finance. The government usually writes these rules, but sometimes they come from other places too.
So I just finished reading “Hedge Fund Compliance: Risks, Regulation, and Management” by Jason A. Scharfman, and I wanted to share what I learned. This book is dense. Like, really dense. But the stuff inside is important if you want to understand how hedge funds actually follow the rules (or don’t).
Part 1 covered stocks and the basics of asset classes. Now in the second half of Chapter 12 of Behavioral Finance and Investor Types, Michael Pompian walks through the rest of the investment universe: bonds, hedge funds, real assets, and finally how to put them all together into a portfolio.
And that’s a wrap on “Hedge Fund Analysis” by Frank J. Travers.
Over the past 20 posts, we went through the entire book, from the history of hedge funds all the way to the final scoring model. Here’s what I think you should take away from all of this.
Chapter 12 is the final chapter and it is where everything comes together. After all the sourcing, screening, interviewing, number crunching, operational checks, risk reviews, and reference calls, Travers shows us how to take all that work and turn it into a single, structured decision.
Chapter 11 opens with a Reagan quote, “Trust but verify.” That pretty much sets the tone. You have spent hundreds of hours doing investment, operational, and risk due diligence on a hedge fund. But have you actually checked whether the people running it are who they say they are?
Chapter 10 opens with a Warren Buffett quote: “Risk comes from not knowing what you’re doing.” Hard to argue with that. Travers uses this chapter to walk us through the risk due diligence process, and honestly, some of the findings are pretty eye-opening.
Last time we covered what arbitrageurs are and why they matter. But here is the thing: knowing that arbitrage exists is very different from understanding how hard it actually is to pull off. This second half of Chapter 17 gets into the specific strategies, the risks, and the spectacular ways arbitrage can go wrong.
In Part 1 we covered the big picture of operational due diligence and why so many hedge fund failures trace back to operational problems. Now in Part 2, Travers lays out exactly what to check, what questions to ask, and then shows us a real example interview with the operations team at Fictional Capital Management (FCM).
Chapter 9 is where Travers shifts from talking about investment analysis to something most people overlook: the boring operational stuff that actually prevents you from losing all your money to fraud.
So I just finished walking through all nine chapters of Richard Wilson’s “The Hedge Fund Book.” And here’s what I think after going through the whole thing.
In Part 1 we covered the basics and operations side of hedge fund FAQs. Now we get to the stuff that actually makes or breaks a fund in the real world: finding money and building a career. Richard Wilson collects the most common questions he gets about marketing, sales, and working in the industry. Let me walk you through what he says.
In Part 1 we covered the theory behind onsite interviews. Now Travers takes us inside the actual visit to Fictional Capital Management. This is where we get to see how all those interview techniques play out in a real (well, fictional but realistic) setting.
Chapter 9 of “The Hedge Fund Book” by Richard C. Wilson is basically one giant FAQ section. Wilson says his company gets over 150,000 emails a year, and a huge chunk of them ask the same questions over and over. So he put together the most common ones with answers. Smart move.
You have done the phone calls, crunched the numbers, analyzed the portfolio. Now it is time to actually show up at the hedge fund’s office and talk to people face to face.
In Part 1 we looked at how to get portfolio data from 13F filings and started breaking down Fictional Capital Management’s long book. Now we continue with more portfolio metrics and, more importantly, the liquidity analysis that catches the fund manager in a contradiction.
Chapter 8 of “The Hedge Fund Book” by Richard C. Wilson is about governance. If that word already made your eyes glaze over, stick with me. This is actually one of the more important chapters, because it explains why hedge funds blow up and how simple oversight structures can prevent it.
Chapter 7 of “The Hedge Fund Book” by Richard C. Wilson gets into the big leagues. We’re talking about hedge funds managing $1 billion or more. What do they do differently? Why do they keep getting bigger while most small funds stay small? Wilson lays out ten best practices from giant funds and brings in two interviews to back it up.
Chapter 7 opens with two quotes. One from Bernard Madoff saying he can’t discuss his proprietary strategy, and one from George Soros about how it’s not about being right or wrong, but how much you make when right and how much you lose when wrong. That contrast alone tells you everything about why portfolio analysis matters.
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.
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.
You have done your homework. You read the DDQ, you looked at the presentation, you reviewed the monthly letters, and the numbers did not scare you away. Now what?
Chapter 4 of The Hedge Fund Book is called “The Shooting Star.” And the title tells you everything. Some hedge funds grow super fast, look amazing for a while, and then crash. Like a shooting star. Bright, quick, gone.
In Part 1 we looked at what a Due Diligence Questionnaire (DDQ) is and how Travers uses it to collect initial data on a hedge fund. In this second part, we cover the rest of the DDQ, the other materials you should request, how to analyze performance data, and one of the most useful free tools out there: SEC 13F filings.
Chapter 3 of “The Hedge Fund Book” by Richard C. Wilson is called “Hedge Fund Marketing Pro.” It opens with a quote that basically says there are three ways to raise capital: have rich friends, land early institutional allocations, or do hard work. That sets the tone for the whole chapter. No shortcuts. Just grind.
So you have narrowed your list of hedge fund candidates. You ran the screens, looked at the charts, compared the numbers. Now what?
Here’s a stat that surprised me. A 2006 study by Capco found that more than half of hedge fund failures happen because of operational problems, not bad investment picks. Think about that. Most funds don’t blow up because the portfolio manager made a bad bet. They blow up because the back office was a mess.
Chapter 3 kicks off Part Two of the book, and this is where things get practical. We are done with the history lessons and strategy overviews. Now Travers rolls up his sleeves and shows us how to actually evaluate a hedge fund step by step.
Chapter 1 of “The Hedge Fund Book” by Richard C. Wilson kicks things off with the basics. And honestly, if you’ve ever wondered what a hedge fund actually is without getting a headache from finance jargon, this chapter does a solid job explaining it.
The introduction of The Hedge Fund Book starts with a pretty bold question. What if you could sit down with 30 hedge fund veterans and just ask them everything? What if someone spent over $80,000 hiring professionals with 7 to 30 years of experience to share their best advice?
Chapter 1 gave us the history. Now in Chapter 2, Travers answers the big question: what actually is a hedge fund, and why would anyone put money into one?
In Part 1, we covered the earliest roots of hedge funds, from Japanese rice traders to Karl Karsten’s statistical forecasting and Benjamin Graham’s value-oriented approach. Now we get to the person who took all those ideas and built something that actually changed Wall Street forever.
The preface of “The Hedge Fund Book” starts with Richard Wilson explaining why he wrote this thing in the first place. And honestly, his reason is pretty relatable. He read most hedge fund books out there over seven years and couldn’t find one that gave you straight, unfiltered advice from actual hedge fund managers.
Chapter 1 of Travers’s book opens with a quote from Mark Twain: “History doesn’t repeat itself, but it does rhyme.” And then Travers immediately proves it by describing a 1970 article from Fortune magazine that sounds like it was written yesterday. Hedge funds losing money, managers getting overconfident, regulators circling. That article is from 1970. Let that sink in.
I just finished reading “The Hedge Fund Book: A Training Manual for Professionals and Capital-Raising Executives” by Richard C. Wilson. And I wanted to share what I learned from it in a way that actually makes sense to normal people.
There are somewhere between 8,000 and 10,000 hedge funds out there. Let that sink in for a second. Even if you had infinite money, how would you figure out which ones are actually good?
Book: Systematic Fixed Income: An Investor’s Guide Author: Scott A. Richardson, Ph.D. ISBN: 9781119900139 Publisher: John Wiley & Sons, 2022
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.