Principles and Practices for Hedge Fund Investors
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Principles and Practices for Hedge Fund Investors

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  • (1) Substantive Background--why the concern about hedge funds--(a) financial market integrity issues (e.g., echoes of LTCM) and (b) investor protection issues (e.g., risk awareness, role in portfolios, etc.). Left to Right: Long-Term Capital Management on BusinessWeek’s cover (Sept 1998) and John Merriweather, A.R. Capital, Michael Berger and Manhattan Investment Fund Ltd, Kenneth Lipper and Lipper Convertible Bond Fund.
  • (2) President's Working Group (PWG) purpose (market integrity and investor protections) and statements on hedge fund investments from 1999 and 2007. (3) Sir Andrew Large's purpose and mandate in the UK.  Calls for him to extend his work to Investors. (4) Mandate and composition (listing chairs of each--Eric Mindich of Eaton Park and me) of the Investors' Committee and the Asset Managers' Committee.  Intended to issue for public comment in February. (90-day public comment).  Reports from the committees are consistent with each other and should be aspirational (not minimalist) in nature. (5). Intended audience for each committee's report--Asset Managers' Committee (hedge fund industry), Investors' Committee (current and potential investors in hedge funds and fiduciaries of plans with or considering hedge fund investments.
  • President's Working Group (PWG) purpose (market integrity and investor protections) and statements on hedge fund investments from 1999 and 2007.
  • President's Working Group (PWG) purpose (market integrity and investor protections) and statements on hedge fund investments from 1999 and 2007.
  • President's Working Group (PWG) purpose (market integrity and investor protections) and statements on hedge fund investments from 1999 and 2007.
  • President's Working Group (PWG) purpose (market integrity and investor protections) and statements on hedge fund investments from 1999 and 2007.
  • Sir Andrew Large's purpose and mandate in the UK.  Calls for him to extend his work to Investors.
  • Composition (listing chairs of each--Eric Mindich of Eaton Park and me) of the Investors' Committee and the Asset Managers' Committee.  Intended to issue for public comment in February. (90-day public comment).  Reports from the committees are consistent with each other and should be aspirational (not minimalist) in nature
  • Intended audience for each committee's report--Asset Managers' Committee (hedge fund industry), Investors' Committee (current and potential investors in hedge funds and fiduciaries of plans with or considering hedge fund investments.
  • Intended audience for each committee's report--Asset Managers' Committee (hedge fund industry), Investors' Committee (current and potential investors in hedge funds and fiduciaries of plans with or considering hedge fund investments.
  • (6) Measures of success for the Investors' Committee--Best (meaningful) Practices, Accepted Practices (by major industry associations), Common Practices (used by institutional investors and fiduciaries of plans)--healthier hedge funds--more successful/healthier use of hedge funds by investors
  • (7). Structure of the Report--Fiduciary's Guide, Investor's Guide
  • 1. No fiduciary should feel forced to invest in hedge funds 2. Potential Roles—standalone absolute return program, part of an integrated alpha/beta strategy, value-added overlay, and/or substitute for traditional investments 3. Appropriateness—depends upon the goals of the plan, sophistication of the investor/plan, determining a compelling role in the portfolio, and ability to identify compelling hedge funds 4. Expertise—needs to be secured to evaluate, monitor, hire and fire hedge fund managers
  • 1. Investment Policy--Successful investors typically detail objectives, responsibilities, performance and risk expectations and parameters 2. Due Diligence—needs to effectively evaluate managers and the expected impact on portfolio risk/returns typically using customized due diligence questionnaires 3. Risk Measurement/Management—market, business, process, style, model, leverage, liquidity, legal, tax needs to be identified and evaluated regularly 4. Expertise—sufficient for evaluation, monitoring, hiring/firing must be on staff or must be secured
  • (10) Looking forward--both committees will be standing committees that will not dissolve after the publication of the reports--will continue to address areas of concern to the hedge fund industry and investors as they arise.  Intended to foster a healthy long-term environment for the hedge fund industry and investors.  3-yr renewable terms among members.

Principles and Practices for Hedge Fund Investors Principles and Practices for Hedge Fund Investors Presentation Transcript

  • The President's Working Group on Financial Markets Russell Read, Ph.D., C.F.A. Chairman, PWG Investors’ Committee Chief Investment Officer, CalPERS PRINCIPLES AND PRACTICES FOR HEDGE FUND INVESTORS PWG Investors’ Committee Managed Funds Association, Network 2008 February 12, 2008 HIGHLIGHTS OF RECOMMENDATIONS
  • The President's Working Group on Financial Markets PRINCIPLES AND PRACTICES FOR HEDGE FUND INVESTORS
    • What is the Concern about Hedge Funds?
    • (2) The President's Working Group and Recently Created Committees
    • Measures of Success for the Investors' Committee
    • Highlights of Report: Principles and Practices for Hedge Fund Investors
    • (5) Looking Forward
  • The President's Working Group on Financial Markets Long-Term Capital Management What is the Concern about Hedge Funds?
  • The President's Working Group on Financial Markets PRINCIPLES AND PRACTICES FOR HEDGE FUND INVESTORS
    • (2) The President's Working Group and Recently Created Committees
        • (a) Purpose of PWG
        • (b) PWG statements on hedge fund investments from 1999 and 2007
        • (c) Sir Andrew Large's Hedge Fund Working Group
        • (d) Asset Managers' Committee and Investors' Committee
        • (e) Intended audience for each committee's report
  • The President's Working Group on Financial Markets Background of PWG
  • The President's Working Group on Financial Markets Background of PWG
  • The President's Working Group on Financial Markets Background of PWG: 1999 Findings on Hedge Fund Regulation
  • The President's Working Group on Financial Markets Background of PWG: 2007 Findings on Hedge Fund Regulation
  • The President's Working Group on Financial Markets
  • The President's Working Group on Financial Markets Composition of PWG Committees Eric Mindich, CEO of Eton Park Capital Management Russell Read, CIO of CalPERS Investors’ Committee Asset Managers’ Committee “… comprised of representatives from a broad array of investors and investor advocates…from labor organizations, endowments, foundations, corporate and public pension funds, investment consultants, and other U.S. and non-U.S. investors.” “… comprised of representatives from a broad array of asset managers. Its purpose is to facilitate an exchange of information between the alternative asset management community and the agencies comprising the…PWG.”
  • The President's Working Group on Financial Markets Intended Audience of PWG Asset Managers’ Committee
  • The President's Working Group on Financial Markets Intended Audience of PWG Investors’ Committee
  • The President's Working Group on Financial Markets PRINCIPLES AND PRACTICES FOR HEDGE FUND INVESTORS (3) Measures of Success for the Investors' Committee (a) Best Practices (b) Accepted Practices (c) Common Practices (d) Healthier and more successful use of hedge funds by investors
  • The President's Working Group on Financial Markets Structure of the Report 1. Introduction 2. Fiduciary’s Guide 3. Investor’s Guide (4) Highlights of Investors’ Committee Report: Principles and Practices for Hedge Fund Investors
  • The President's Working Group on Financial Markets Investors’ Committee--Highlights of the Fiduciary's Guide
    • No fiduciary should feel forced to invest in hedge funds
    • Potential Roles
    • Appropriateness
    • Expertise
  • The President's Working Group on Financial Markets Investors’ Committee--Highlights of the Investor's Guide
    • Detailed Investment Policy
    • 2. Due Diligence
    • 3. Risk Measurement / Management
    • 4. Expertise
  • The President's Working Group on Financial Markets PRINCIPLES AND PRACTICES FOR HEDGE FUND INVESTORS
    • (5) Looking Forward
        • (a) both committees will be standing committees
        • -- will not dissolve after the publication of the reports
        • -- will continue to address areas of concern to the hedge fund industry and investors as they arise
        • -- three year renewable terms among members
        • (b) Intended to foster a healthy long-term environment for the hedge fund industry and investors
  • The President's Working Group on Financial Markets Russell Read, Ph.D., C.F.A. Chairman, PWG Investors’ Committee Chief Investment Officer, CalPERS PRINCIPLES AND PRACTICES FOR HEDGE FUND INVESTORS PWG Investors’ Committee NAPPA Winter Section Meeting, February 8, 2008