Hypothetical -
I am an asset manager specializing in hedge fund of funds investing and I am looking at prospective hedge fund investments. What am I looking for in a hedge fund and why?
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Predatory trading
I am no expert but you are looking at:
Strategy: something that works in the current environment Past performance: stable, >13% Sharpe/Sortino ratio: sharpe of at least 1, preferably >2 Management: experienced, stable Top positions Fees: 2/20 or lower? Minimum investment Lockup/redemptions High watermark
Fads_86 definitely covered most of the basics.
Try to look for funds that can be very nimble in adapting their strategies as the market volatility continues. Be sure to avoid paying for the name...there's no point being invested in a big name hedge fund just to say you're invested in it, especially if it's losing lots of money due to poorly executed strategy, investor redemptions, etc. Don't even pay for past performance...look at the strategy, underlying rationale, and if it fits with your (or your client's) investment objectives.
Compare fund performance to some HF benchmarks over several years to get a gauge of how stable their returns really are.
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