{"product_id":"hedge-fund-operational-due-diligence-9780470372340","title":"Hedge Fund Operational Due Diligence","description":"\u003cb\u003eBook Synopsis\u003c\/b\u003e\u003cbr\u003e\u003cb\u003eHow to diagnose and monitor key hedge fund operational risks\u003c\/b\u003e  \u003cp\u003eWith the various scandals taking place with hedge funds, now more than ever, both financial and operational risks must be examined. Revealing how to effectively detect and evaluate often-overlooked operational risk factors in hedge funds, such as multi-jurisdictional regulatory coordination, organizational nesting, and vaporware, \u003ci\u003eHedge Fund Operational Due Diligence\u003c\/i\u003e includes real-world examples drawn from the author''s experiences dealing with the operational risks of a global platform of over 80 hedge funds, funds\u003cbr\u003e of hedge funds, private equity, and real estate managers.\u003c\/p\u003e\u003cbr\u003e\u003cbr\u003e\u003cb\u003eTrade Review\u003c\/b\u003e\u003cbr\u003e\"Informative book by Jason Scharfman, on, well, pretty much everything you need to run a hedge fund…Scharfman also explains the reliance on technology that is becoming ever more apparent in hedge funds, the dangers of phantomware, and questions that should be asked before committing to any new technology.\" (\u003ci\u003ehedgeco.net\u003c\/i\u003e, January 26th, 2009)  \u003cp\u003e\"In his book, Jason Scharfman identifies these operational risks and recommends a strong and innovative \"operational\" due diligence review program as the best defense against them. His book outlines a step-by-step guide that shows investors how to effectively detect and evaluate often-overlooked operational risk factors in hedge funds and other investments in order to provide hedge funds and their investors with the skills to understand and hopefully mitigate these risks.\" (\u003ci\u003eThe Hedge Fund Law Report\u003c\/i\u003e, January 8, 2009)\u003c\/p\u003e\u003cbr\u003e\u003cbr\u003e\u003cb\u003eTable of Contents\u003c\/b\u003e\u003cbr\u003e\u003cp\u003ePreface xiii\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 1 What Is Operational Risk? 1\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBrief History 2\u003c\/p\u003e \u003cp\u003eModern Definition of Operational Risk in a Hedge Fund Context 7\u003c\/p\u003e \u003cp\u003eOperational Due Diligence versus Operational Risk 8\u003c\/p\u003e \u003cp\u003eKey Areas 9\u003c\/p\u003e \u003cp\u003eExternal Risks 12\u003c\/p\u003e \u003cp\u003eInternal Risks 23\u003c\/p\u003e \u003cp\u003eBlended Risks 36\u003c\/p\u003e \u003cp\u003eThe Five Core Themes 45\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 2 The Importance of Operational Due Diligence 49\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eWhy Should Investors Care about Operational Risk? 49\u003c\/p\u003e \u003cp\u003eMorton’s Fork or a Hobson’s Choice? 50\u003c\/p\u003e \u003cp\u003eOutright Fraud Still Exists 51\u003c\/p\u003e \u003cp\u003eHedge Fund Fraud Cannot Be Modeled 52\u003c\/p\u003e \u003cp\u003eSmall Discrepancies Add Up 52\u003c\/p\u003e \u003cp\u003eLack of Standardized Regulation 54\u003c\/p\u003e \u003cp\u003eEach Hedge Fund Is Different 55\u003c\/p\u003e \u003cp\u003eAbility to Generate an Informational Edge 56\u003c\/p\u003e \u003cp\u003ePotential to Reduce Losses and Increase Returns 57\u003c\/p\u003e \u003cp\u003eConsidering Operational Risk Factors Presents a Different View into a Firm 57\u003c\/p\u003e \u003cp\u003eCommon Misconceptions 58\u003c\/p\u003e \u003cp\u003eOther Considerations: There Is Not Necessarily a Positive Correlation between Assets and Operational Quality 60\u003c\/p\u003e \u003cp\u003eA Study in Operational Failure: Bayou Hedge Fund Group 60\u003c\/p\u003e \u003cp\u003eAffiliated Broker-Dealer 61\u003c\/p\u003e \u003cp\u003eLarge Discrepancies in the Performance of Onshore and Offshore Funds 62\u003c\/p\u003e \u003cp\u003eDeclining Capital of Broker-Dealer 63\u003c\/p\u003e \u003cp\u003eBoard of Directors: Members and Actions 63\u003c\/p\u003e \u003cp\u003eLavish Expenses of Broker-Dealers 63\u003c\/p\u003e \u003cp\u003eFake Audits Prepared by a Phony Auditor 64\u003c\/p\u003e \u003cp\u003eBackground Questions 64\u003c\/p\u003e \u003cp\u003eLack of Investor Communication 64\u003c\/p\u003e \u003cp\u003eTies to People Barred from the Securities Industry 65\u003c\/p\u003e \u003cp\u003eRevision of Conflicted Marketing Materials 66\u003c\/p\u003e \u003cp\u003eOther Anomalies 66\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 3 Who Is Qualified to Perform an Operational Due Diligence Review? 69\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eEssential Skills 73\u003c\/p\u003e \u003cp\u003ePrimary Skills 74\u003c\/p\u003e \u003cp\u003ePrimary, Secondary, Blended, and Other Skills 84\u003c\/p\u003e \u003cp\u003eIn-house versus Outsourcing 85\u003c\/p\u003e \u003cp\u003eEvolution of Independent Operational Rating Agencies 86\u003c\/p\u003e \u003cp\u003eBenefits of Third-Party Rating Agencies 86\u003c\/p\u003e \u003cp\u003eCriticisms of Third-Party Rating Agencies and Operational Due Diligence Providers 87\u003c\/p\u003e \u003cp\u003eFactors to Consider before Performing an Operational Review of a Hedge Fund 90\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 4 Creating an Initial Operational Profile 91\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eWhen Does an Operational Due Diligence Review Begin? 91\u003c\/p\u003e \u003cp\u003eDocumentation 92\u003c\/p\u003e \u003cp\u003eThe Piñata Problem 93\u003c\/p\u003e \u003cp\u003eDue Diligence Questionnaire: To Use or Not to Use? 99\u003c\/p\u003e \u003cp\u003eBackground Investigations 101\u003c\/p\u003e \u003cp\u003eOther Considerations 106\u003c\/p\u003e \u003cp\u003eImportance of Onsite Visits 107\u003c\/p\u003e \u003cp\u003eWhich Office to Visit 108\u003c\/p\u003e \u003cp\u003eManager Interview Process 109\u003c\/p\u003e \u003cp\u003eWhat Topics Should Be Covered During an Onsite Review? 111\u003c\/p\u003e \u003cp\u003eSample Topic Questions 113\u003c\/p\u003e \u003cp\u003eIn What Order Should These Topics Be Covered? 117\u003c\/p\u003e \u003cp\u003eService Provider Reviews 117\u003c\/p\u003e \u003cp\u003eQualitative Operational Report: Documenting the Operational Data 119\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 5 Evaluating the Gray Areas: Examples 121\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eScenario 1: “It Was Not Me”—Hedge Fund Manager Claims Mistaken Identity 121\u003c\/p\u003e \u003cp\u003eScenario 2: “It Was Me, But Everyone Was Doing It”—Are Regulatory Witch Hunts Real? 123\u003c\/p\u003e \u003cp\u003eScenario 3: “It Was Me, But I Did Nothing Wrong”—Manager Proved Not Guilty 127\u003c\/p\u003e \u003cp\u003eScenario 4: The Low-Profile Hedge Fund Manager—Is No News Good News? 129\u003c\/p\u003e \u003cp\u003eScenario 5: The Infrastructure Outsourcer—Can One Administrator Do Everything? 135\u003c\/p\u003e \u003cp\u003eScenario 6: The Mountain Climber—Can Plans for Large, Fast Growth Trip You Along the Way? 137\u003c\/p\u003e \u003cp\u003eScenario 7: The Stumbling Giant—Can a Large Manager Lose Sight of Small Controls? 140\u003c\/p\u003e \u003cp\u003eScenario 8: The Apologetic Headmaster—Are Junior Staff as Informed as Senior Management? 143\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 6 Ten Tips for Performing an Operational Due Diligence Review 145\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eTip 1: Avoid Meeting with the Wrong People or the Wrong Groups 146\u003c\/p\u003e \u003cp\u003eTip 2: Get Out of the Conference Room 147\u003c\/p\u003e \u003cp\u003eTip 3: Little White Lies Can Turn into Big Problems 149\u003c\/p\u003e \u003cp\u003eTip 4: Be Wary of Phantomware 151\u003c\/p\u003e \u003cp\u003eTip 5: Focus on Documentation and Negotiation 153\u003c\/p\u003e \u003cp\u003eTip 6: Read the Fine Print (Financial Statement Notes, etc.) 154\u003c\/p\u003e \u003cp\u003eTip 7: Reference Checking: Importance of In-Sample and Out-of-Sample References 156\u003c\/p\u003e \u003cp\u003eTip 8: Credit Analysis: Are Funds Financially Viable? 157\u003c\/p\u003e \u003cp\u003eTip 9: Long-Term Planning: Key Staff Retention, Succession Planning, and More 157\u003c\/p\u003e \u003cp\u003eTip 10: Growth Planning: Is the Manager Proactive or Reactive? 158\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 7 Ongoing Operational Profile Monitoring 161\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eHow Often Should Onsite Operational Reviews Be Conducted? 163\u003c\/p\u003e \u003cp\u003eRemote Operational Due Diligence Monitoring 164\u003c\/p\u003e \u003cp\u003eMedia Monitoring 164\u003c\/p\u003e \u003cp\u003eLitigation and Regulatory Monitoring 166\u003c\/p\u003e \u003cp\u003eHedge Fund Communication Reviews 166\u003c\/p\u003e \u003cp\u003eAssets Under Management and Performance Monitoring 167\u003c\/p\u003e \u003cp\u003eOperational Events 168\u003c\/p\u003e \u003cp\u003eEffect of Discovery on the Magnitude of an Operational Event 169\u003c\/p\u003e \u003cp\u003eOnsite Visit Frequency and Operational Events 169\u003c\/p\u003e \u003cp\u003eDevelopmental Operational Traps 169\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 8 Techniques for Modeling Operational Risk 179\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eScoring Systems 179\u003c\/p\u003e \u003cp\u003eBuilding a Scoring System: Category Determination 179\u003c\/p\u003e \u003cp\u003eCategory Definitions 185\u003c\/p\u003e \u003cp\u003eCombinations of Category Definition Approaches 189\u003c\/p\u003e \u003cp\u003eCategory Weight Assignment 193\u003c\/p\u003e \u003cp\u003eWeighting Aggregation Model 195\u003c\/p\u003e \u003cp\u003eWeighting Disaggregation Model 197\u003c\/p\u003e \u003cp\u003eWAM versus WDM 200\u003c\/p\u003e \u003cp\u003eCategory Weight Consistency and Reweighting Considerations 201\u003c\/p\u003e \u003cp\u003eFactor Marginalization 202\u003c\/p\u003e \u003cp\u003eCategory Scale Determination and the Meaning of Scores 203\u003c\/p\u003e \u003cp\u003eThreshold Self-Assessment and Determination 204\u003c\/p\u003e \u003cp\u003eScore Assignment 206\u003c\/p\u003e \u003cp\u003eDiscretionary Penalties and Bonuses 212\u003c\/p\u003e \u003cp\u003eScore Aggregation: Sum Totaling and Weighted Averages 214\u003c\/p\u003e \u003cp\u003eCriticisms of Scorecard Models 215\u003c\/p\u003e \u003cp\u003eBenefits of Scorecard Models 217\u003c\/p\u003e \u003cp\u003eVisualization Techniques 217\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 9 Bridging the Gap: Incorporating Operational Risk Consideration into the Portfolio Construction and Asset Allocation Process 225\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eProactive Monitoring: Graphical Universe Creation 227\u003c\/p\u003e \u003cp\u003eProactive Management of Operational Risks 232\u003c\/p\u003e \u003cp\u003eProtecting against Conglomeration Risks: Multivariate Commonality Analysis 233\u003c\/p\u003e \u003cp\u003eOperational Directional Views 235\u003c\/p\u003e \u003cp\u003eExample of Multivariate Commonality Analysis 236\u003c\/p\u003e \u003cp\u003eFirst Objective: Total Diversity Goal 237\u003c\/p\u003e \u003cp\u003eSecond Objective: FSA Overweight Goal 239\u003c\/p\u003e \u003cp\u003eThird Objective: FSA Underweight Goal 243\u003c\/p\u003e \u003cp\u003eConclusions of Scenario Analysis 243\u003c\/p\u003e \u003cp\u003eConsidering Operational Reviews in the Hedge Fund Portfolio Rebalancing Process 245\u003c\/p\u003e \u003cp\u003eOperational Drag 245\u003c\/p\u003e \u003cp\u003eMeta Risks 249\u003c\/p\u003e \u003cp\u003eOperational Factor 250\u003c\/p\u003e \u003cp\u003eOperational Scenario Analysis 253\u003c\/p\u003e \u003cp\u003eCan Operational Risk Be Entirely Eliminated? 254\u003c\/p\u003e \u003cp\u003eFactoring Operational Risk into Total Risk Calculations 256\u003c\/p\u003e \u003cp\u003eBeyond Scorecard Approaches: Discounting Expected Return 257\u003c\/p\u003e \u003cp\u003eDiscounted Expected Returns with the Operational Factor 261\u003c\/p\u003e \u003cp\u003eOperational Haircuts 262\u003c\/p\u003e \u003cp\u003eExpected Return and Operational Risk 263\u003c\/p\u003e \u003cp\u003eShape of the Expected Return versus Operational Risk Curve 264\u003c\/p\u003e \u003cp\u003eSecond Operational Threshold 265\u003c\/p\u003e \u003cp\u003eFinal Thoughts 267\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 10 Looking Ahead: Trends in the Space 269\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIncreased Use of Consultants 269\u003c\/p\u003e \u003cp\u003eCommoditization of Background Investigations and Canned Operational Due Diligence Reports 272\u003c\/p\u003e \u003cp\u003eIncreased Reliance on Service Provider Consulting Services 277\u003c\/p\u003e \u003cp\u003eCapture of Hedge Funds by Service Providers and Employees 278\u003c\/p\u003e \u003cp\u003eHedge Fund Pursuit of Audit Certifications 280\u003c\/p\u003e \u003cp\u003eOperational Activism 281\u003c\/p\u003e \u003cp\u003eAU 332 and FAS 157 283\u003c\/p\u003e \u003cp\u003eDevelopment of Hedges to Operational Risks 286\u003c\/p\u003e \u003cp\u003eLinks between Operational Risk and Credit Analysis 288\u003c\/p\u003e \u003cp\u003eProposed Reregulation of the Hedge Fund Industry 289\u003c\/p\u003e \u003cp\u003eIndex 293\u003c\/p\u003e","brand":"John Wiley \u0026 Sons Inc","offers":[{"title":"Default Title","offer_id":48864626671959,"sku":"9780470372340","price":63.75,"currency_code":"GBP","in_stock":true}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/0817\/1739\/5799\/files\/9780470372340.jpg?v=1722272791","url":"https:\/\/bookcurl.com\/products\/hedge-fund-operational-due-diligence-9780470372340","provider":"Book Curl","version":"1.0","type":"link"}