Hedge Fund Symposium

I wanted to let you know about a hedge fund conference happening here in South Florida that the Family Office Club has partnered with. The 3rd Annual Hedge Fund Symposium is taking place in just a couple weeks on November 3rd at the Fort Lauderdale Ritz Carlton Resort & Spa. If you are planning on attending the Family Office Super Summit here in Miami (http://WilsonConferences.com/Super) at the end of November then this is a great opportunity to build some local connections ahead of that conference.

Here is the website to learn more about this hedge fund event: www.hedgefundsymposium.com/

I’ll be at the Hedge Fund Symposium and be sure to let me know if you plan on joining so we can meet up.


Theodore O’Brien
Managing Director
Hedge Fund Group
328 Crandon Blvd., #223
Key Biscayne, FL 33149
(305) 503-9077

Disadvantages of Funds of Hedge Funds

I wanted to share a short piece outlining some of the disadvantages to fund of hedge funds. This is informed by speaking with allocators and family offices about their investment portfolio and strategies and for educational purposes only.

We have written previously about the benefits to funds of hedge funds for certain investors but with the way the hedge fund industry has evolved, we tend to hear a lot more about the negatives. I’ll be discussing the fund of funds model along single manager strategies on a panel I’m moderating at our Single Family Office Summit (REGISTER HERE) and I welcome a discussion beforehand by those in my network who may have strong opinions on fund of funds.

Disadvantages of Fund of Hedge funds

While funds of hedge funds can help investors realize great returns while outsourcing the due diligence required of intelligent investing, there are many disadvantages associated as well. Problems that arise with fund of funds can include limited liquidity, exposure to industry-wide trends, and less control and customization. Funds of hedge funds can have multiple shortcomings.

An important aspect of investing is liquidity, the ability to transfer your money in and out of one investment. For hedge fund investors, this can be particularly problematic because hedge funds often have limited liquidity. This means that a fund will only allow its investors to redeem their investment at certain times during the year; the most common intervals being monthly, quarterly, and annually. In order to cash out the investment, an investor must submit a redemption notice to the fund for the next available redemption date and funds will often require that you submit this notice at least 30 days prior to that date.

Limited Liquidity

Liquidity may seem like a minor concern but it can quickly become a big problem for investors. In addition to the more common reasons for withdrawals, such as poor performance or a rebalancing of the investor’s portfolio, there are a number of hard-to-predict events that can arise. To name just a few possibilities: the investor could have a medical or financial emergency that requires the money allocated to the fund; the fund manager could become seriously ill or die unexpectedly; or a significant part of the management team could leave the fund to start their own fund. All of these events could place your capital at significant risk and will probably make you wish that you could redeem your money as easily as you can in a common stock investment. Funds of hedge funds are similar in their limited liquidity because they have allocated to hedge funds with varying redemption dates and many funds of funds thus impose similar redemption requirements and even lock-ups. Investors should take liquidity into account when considering a hedge fund or fund-of-hedge-funds investment.

Exposure to Industry-Wide Trends

A fund of hedge funds can diversify an investor’s exposure to single-manager or single-strategy risks, but investors will likely still have some exposure to hedge fund industry-wide trends. For example, hedge fund performance was sluggish in 2011 to 2012 with many analysts pointing to volatility in the markets as a primary cause of the lackluster returns. A struggling global economy, the European sovereign debt crisis, and fiscal negotiations in the United States all helped contribute to extreme volatility in recent years. Such widespread trends can have an impact on hedge funds even those in otherwise minimally correlated strategies. Thus, we can see that overall economic or industry-related trends can affect the returns of even a highly diversified portfolio of hedge fund investments.

Less Control and Customization

For those who prefer to have complete control and transparency with their investments, a fund of hedge funds presents a few problems. For one, in most cases, the fund of hedge funds is actively managed for the benefit of multiple investors and the management team may make decisions that are contrary to what the investor would prefer. For example, the investor may have a greater risk appetite than the other investors in the fund or than the fund of hedge funds management team thinks is appropriate given the market conditions. This lack of customization and control can be frustrating, especially for seasoned investors who are used to having complete control over the management of their investments. Still, for many fund-of-hedge-fund investors, this hands-off approach to investing is a benefit as it allows greater peace of mind knowing that a team of investment professionals is responsible for the performance of the fund.

Less Transparency

In a fund of hedge funds, the investor does not have a relationship with the hedge funds that make up the portfolio. This is seen as a disadvantage because the investor is less engaged with the investment and may have less insight into the operations and management of each hedge fund. This oversight is delegated to the fund of hedge funds and the investor is largely expected to trust the judgment and abilities of the fund-of-funds management team. For investors, this can be a frightening prospect, especially in light of recent scandals and frauds where many investors were only vaguely aware that their fund-of-funds or feeder-fund vehicles had invested in risky or fraudulent investments. It is therefore incumbent on the investor to only select a fund of hedge funds that he feels can adequately perform the due diligence, compliance, monitoring, and other duties required of hedge fund investing.

Do you have a strong opinion on this? We’re always discussing industry trends at the Hedge Fund Group on LinkedIn if you’re not a member. I’ll be putting this up for debate there, too, if you want to join in (free): http://www.LinkedIn.com/e/gis/44059/5FC1F8699305

Theodore O’Brien
Managing Director
Hedge Fund Group
Certified Hedge Fund Professional (CHP)
[email protected]
77 Harbor Drive #76
Key Biscayne FL 33149

Setting Goals for Your Hedge Fund Career

It is a common conception that a way to advance in life–especially in your education or career–is by setting goals. Having a goal, like becoming an executive or making a profit in the first year running a start-up, gives you something to strive for. At the end of the year, most of us end up wondering why we still have not achieved our goals. Goals are important, but you need to take concrete steps to reach that goal. It’s easy to fall into the trap of simply setting a goal and not doing much to reach it.

Setting a goal for your hedge fund career is important in establishing where you are now and where you want to be in the future. The following is an example of a step-by-step plan to advance your hedge fund career. Every person’s goals will be different but the process is important in getting what you want.

Step 1: Where are you now? How can you decide where you want to be if you do not know where you are now? It is important to assess your current situation and figure out if you are satisfied at your current position or if you would like to move up. Some people are lured by the high pay and reputation of hedge funds but years later once they enter the industry they realize their last job was better. So really look at your current job–whether it is inside or outside of a hedge fund–and decide whether you really want to leave this position or if you are actually satisfied there.

Step 2: Where do you want to go? Assuming you’ve decided to enter the hedge fund industry or advance your existing hedge fund career, you have to ask yourself: Where do I want to go? I believe that many of the obstacles we face in life are self-created. Advancing your career is a question of whether you want to put in the necessary work. For some, it is easy. For others, the task is arduous and requires a lot of effort for a little payoff. So assess your own motivation and commitment to advancing your career and set a realistic goal based on that. You may want to move into a more senior management or head trading position in the firm but you are not willing to get the (sometimes) necessary MBA or advanced quantitative or mathematics-related degree. Figure out where you want to be and take steps to get there.

Step 3: Develop a Strategy. The world of hedge funds is highly competitive. You will have a tough time making it into a hedge fund without a well-thought-out strategy for reaching your goals. Whether you already have a job in the hedge fund industry or you are looking for your first, you will need a plan. I have written previously on developing a strategy for advancing your hedge fund career. Here is a summary:

  • Become a student of the hedge fund industry by reading news articles and following blogs (like HedgeFundBlogger.com); joining a local or online hedge fund networking association; frequently having conversations with securities traders and hedge fund professionals.
  • Narrow your search to 1-2 positions taking into account what role or strategy you are most passionate about; what fits your unique abilities and qualifications best; salary; location; competitiveness of industry etc. For example, if you have a Masters in Economics and worked overseas at a bank, you may look at global macro funds that fit your expertise more than, say, a merger arb fund.
  • Find a hedge fund mentor. Look for someone with experience in the industry and reach out to finance professors, family, friends and past associates.
  • Develop Your Unique Selling Proposition; discover what makes you more valuable and different from other candidates. Consider special skills, second languages, valuable experience in a related industry, designations or awards etc.
  • Find a hedge fund internship if you are having trouble landing a paid position at a hedge fund.
  • Develop your hedge fund resume and interview skills.
  • Improve your education with an MBA, finance degree or professional designation that give you the background necessary to stand out as a hedge fund job candidate.
  • Land the unadvertised hedge fund job through cold-calling funds; exchanging e-mails with hedge fund professionals; attending networking events; offering to work for a free trial period; or other strategies that less driven professionals may not pursue.

Update your resume with new qualifications and experiences you’ve added since executing on the other steps in your plan as well as feedback from your mentor and interviews. Reach out to professionals you have met during your research for potential job opportunities. Check back with funds you have spoken with previously. This is a loose set of suggestions for advancing your hedge fund career and should be adjusted based on your chosen career path.

Step 4: Stay with your strategy.

In my experience, the most common reason for not getting a job in the hedge fund industry is that the person gave up too soon. It can be really tough and even demoralizing to interview with firms and get rejected. But it is a learning process, listen to their reasons hirers give for not selecting you and adjust your strategy to improve the areas you are lacking in. You may feel like you are wasting your time but you will absolutely be wasting your time if you give up at the first challenge you face. You may need to take a less desired job in the mean time before you get the one you want, but you should still be working toward your goal during this time.

Step 5: I reached my goal, what now?

Congratulations, you’ve reached your goal. But now you may be wondering what to do next. If establishing your goals and developing a strategy to achieve them has worked for you, continue to assess your situation and find new goals. I do this regularly to ensure that I am never treading water. It is always helpful to be working toward a goal.

I hope this has been a helpful guide to advancing your career in the hedge fund industry by setting career goals. For more hedge fund career articles, training videos, a career guide, resume coaching and other resources join the Hedge Fund Group association or consider our self-paced hedge fund certification program: HedgeFundCertification.com

Hedge Fund Due Diligence Questionnaire

Many investors require a document called the Due Diligence Questionnaire (DDQ) to be completed by hedge fund managers seeking allocations. In this short video I explain this crucial document, why investors require a DDQ, and what types of questions you should expect from your LPs.  We will be discussing hedge fund allocations, LP issues, and fund manager evaluation at our annual CIO Summit next month – reserve your ticket today.