Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance -- Contents -- Preface -- Acknowledgments -- PART ONE: Overview -- CHAPTER 1: The Basics of Hedge Fund Investing -- WHAT ARE ALTERNATIVE INVESTMENTS? -- HEDGE FUND CHARACTERISTICS AND STRUCTURES -- Legal Entities and Domiciles -- Management Company Responsibility and Organizational Design -- HEDGE FUNDS VERSUS MUTUAL FUNDS -- Size and Scope of the Mutual Fund Industry -- Size and Scope of the Hedge Fund Industry -- TYPES OF HEDGE FUND STRATEGIES -- Reporting Monthly Returns -- IMPACT OF LEVERAGE, SHORT SELLING, AND DERIVATIVES -- An Example of a Leveraged Long Position in a Margin Account -- An Example of a Leveraged Short-Sale Positionin a Margin Account -- MEASURING PERFORMANCE -- Arithmetic and Geometric Mean Returns -- Standard Deviation, Skew, and Kurtosis -- Gross and Net Market Value Exposures -- Value at Risk as a Measure or Fund Constraint -- SUMMARY -- DISCUSSION QUESTIONS AND PROBLEMS -- CHAPTER 2: Who Invests in Hedge Funds and Why? -- ACADEMIC RESEARCH IN SUPPORT OF HEDGE FUND INVESTING -- HEDGE FUNDS AND ASSET ALLOCATION -- Individual versus Institutional Investors -- Asset Allocation and Portfolio Effects -- HIGH-NET-WORTH INDIVIDUALS -- FAMILY OFFICES -- ENDOWMENTS -- PUBLIC PENSION PLANS -- SOVEREIGN WEALTH FUNDS -- FUNDS OF HEDGE FUNDS (FoFs) -- WHY NOT ALLOCATE 100 PERCENT TO HEDGE FUNDS? -- The Industry Is Not Mature and has Lost Some Investor Confidence -- Investments in Hedge Funds Negatively Impact Portfolio Liquidity -- Limited Transparency -- Reputational Concerns -- Concentration Risk -- Business Risk or Closure Risk -- HIGHLIGHTS OF RECENT INVESTOR SURVEYS -- SUMMARY -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- CHAPTER 3: Industry Trends, Flows, and Characteristics.

PRE-1998, WHEN NO ONE REALLY CARED -- 1998 TO 2002, WHEN EVERYONE TOOK NOTICE -- 2002 TO 2007, THE GOLDEN AGE -- 2008 AND 2009, THE ROOT OF ALL EVIL? -- 2010 TO PRESENT, GOD'S ANSWER TO THE YIELD GAP! -- INDUSTRY CHARACTERISTICS -- CURRENT STATE OF THE INDUSTRY -- STATE OF U. S . HEDGE FUND REGULATIONS -- Investment Advisers Act of 1940 -- Securities Act of 1933 -- Securities Exchange Act of 1934 -- Investment Company Act of 1940 -- SUMMARY -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- PART TWO: Understanding the Strategies -- CHAPTER 4: Global Macro Investing -- ORGANIZATIONAL STRUCTURE -- PORTFOLIO CHARACTERISTICS -- Top-Down Discretionary or Directional Trading -- Systematic Trading and Trend Following -- FUND TERMS AND CONDITIONS -- FLOWS AND PERFORMANCE -- WHAT I S THE PROFILE OF A GLOBAL MACRO MANAGER? -- Moore Capital Management -- Tudor Investment Corporation -- MEASURING RETURNS AND EVALUATING RISK -- SUMMARY -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- CHAPTER 5: Long and Short Equity Strategies -- ORGANIZATIONAL STRUCTURE -- INVESTMENT PROCESS AND PORTFOLIO CHARACTERISTICS -- STRATEGY PROFIT OR LOSS AND EXPOSURE REPORTING -- Long Bias Funds -- Variable Bias Funds -- Classic Equity Market Neutral Funds -- Risk Arbitrage -- FUND TERMS AND CONDITIONS -- FLOWS AND PERFORMANCE -- WHAT I S THE PROFILE OF A LONG AND SHORT EQUITY MANAGER? -- Algert Coldiron Investors (ACI) -- Edenbrook Capital Management -- Renaissance Technologies -- MEASURING RETURNS AND EVALUATING RISK -- SUMMARY AND OUTLOOK -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- CHAPTER 6: Fixed Income Relative Value and Credit Arbitrage Strategies -- ORGANIZATIONAL STRUCTURE -- INVESTMENT PROCESS AND PORTFOLIO CHARACTERISTICS -- STRATEGY PROFIT OR LOSS AND EXPOSURE REPORTING.

Fixed-Income Relative Value -- Credit Strategies -- FUND TERMS AND CONDITIONS -- FLOWS AND PERFORMANCE -- WHAT IS THE PROFILE OF A RELATIVE VALUE MANAGER? -- Pine River -- BlueCrest Capital -- MEASURING RETURNS AND EVALUATING RISK -- SUMMARY AND OUTLOOK -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- CHAPTER 7: Convertible Arbitrage Strategies -- ORGANIZATIONAL STRUCTURE -- UNDERSTANDING THE INVESTMENT PROCESS AND PORTFOLIO CONSTRUCTION OBJECTIVES -- STRATEGY PROFIT OR LOSS AND EXPOSURE REPORTING -- Example of a U.S.-Style Cash-and-Carry Convertible Arbitrage Bond Trade from AIMA 2005 Report on Convertible Bonds -- FUND TERMS AND CONDITIONS -- FLOWS AND PERFORMANCE -- WHAT IS THE PROFILE OF A RELATIVE VALUE MANAGER? -- Tenor Capital Management -- MEASURING RETURNS AND EVALUATING RISK -- SUMMARY AND OUTLOOK -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- CHAPTER 8: Multistrategy Funds and Funds of Hedge Funds -- MULTISTRATEGY FUNDS -- ORGANIZATIONAL STRUCTURE -- UNIQUE OPPORTUNITIES AND RISKS ASSOCIATED WITH MULTISTRATEGY FUNDS -- FLOWS AND PERFORMANCE -- WHAT IS THE PROFILE OF A MULTISTRATEGY MANAGER? -- Citadel Investment -- Balyasny Asset Management -- STRATEGY PERFORMANCE AND RISK METRICS-MULTI STRATEGY FUNDS -- FUNDS OF FUNDS -- ORGANIZATIONAL STRUCTURE OF FUND OF FUNDS -- UNIQUE OPPORTUNITIES AND RISK ASSOCIATED WITH FUND OF FUNDS -- FLOWS AND PERFORMANCE -- WHAT IS THE PROFILE OF A FUND OF FUNDS MANAGER? -- FRM -- Permal -- Grosvenor -- INDEX REPLICATION STRATEGIES -- SUMMARY AND OUTLOOK -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- PART THREE: Evaluating Factors Influencing Individual Fund Risk and Reward -- CHAPTER 9: Measuring Performance and Performance Persistence -- UNDERSTANDING HISTORICAL RETURNS, NORMALITY, PORTFOLIO SENSITIVITY, AND DATA BIAS.

Historical Returns -- MEASURING NORMALITY OF FUND PERFORMANCE DATA -- EXPOSURE TO SPECIFIC ADVERSE PRICE MOVEMENTS OR HISTORICAL SCENARIOS -- Data Reliability -- ACADEMIC FINDINGS ON PERFORMANCE PERSISTENCE -- SUMMARY AND OUTLOOK -- APPENDIX -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- CHAPTER 10: Impact of Fund Characteristics and Terms on Performance -- INCENTIVES -- AGENCY THEORY -- MANAGER DISCRETION -- Discretion and Performance -- Location, Domicile, and Partners -- Economies of Agglomeration -- SUMMARY -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- CHAPTER 11: Performing Due Diligence on Specific Managers and Funds -- BE PREPARED -- LEARN FROM THE PAST-FROM BOTH SUCCESSES AND FAILURES -- IF IT LOOKS TOO GOOD TO BE TRUE, IT PROBABLY IS -- REMEMBER, IT'S STILL ABOUT RETURNS! -- COMMON ELEMENTS OF THE DUE DILIGENCE PROCESS -- INVESTMENT MANAGEMENT -- What Is Your Strategy, and How Does It Work? -- How Is Equity Ownership Allocated among the Portfolio Management , Trading , and Research Teams? -- Is the Track Record Reliable? -- Who Are the Principals , and Are They Trustworthy? -- RISK MANAGEMENT PROCESS -- How Is Risk Measured and Managed? -- How Are Securities Valued? -- What Is the Portfolio Leverage and Liquidity? -- Does the Strategy Expose the Investor to Tail Risk? -- How Often Do Investors Get Risk Reports, and What Do They Include? -- Do the Fund Terms Make Sense for the Strategy? -- FUND OPERATING ENVIRONMENT, DOCUMENTATION, FINANCIALS, AND SERVICE PROVIDERS -- Interna l Control Assessment -- Documents and Disclosures -- Service Provider Evaluation -- BUSINESS MODEL RISK -- FRAUD RISK -- SUMMARY -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- CHAPTER 12: Evaluating the Roles of Service Providers -- WHO ARE A FUND'S CRITICAL SERVICE PROVIDERS?.

FUND ADMINISTRATOR -- Scope of Services -- Why Should Investors Care about Fund Administration? -- Firm Profiles -- PRIME BROKERS -- Scope of Services -- Why Should Investors Care about a Fund's Prime Broker? -- Questions to Ask about Prime Brokers -- Firm Profiles -- AUDITORS -- Scope of Services -- Firm Profiles -- LEGAL COUNSEL -- Scope of Services -- Firm Profiles -- TECHNOLOGY ENVIRONMENT AND SERVICE PROVIDERS -- Scope of Services -- Why Should Investors Care about a Fund's Technology Environment? -- Questions to Ask about Technology Providers -- Firm Profiles -- OTHER CONSIDERATIONS -- SUMMARY -- DISCUSSION QUESTIONS AND PROBLEMS -- REFERENCES AND ADDITIONAL READING -- Conclusion -- Glossary -- Index.