Hedge Fund Operational Due Diligence: Understanding the Risks (Wiley Finance) [Hardcover]

Jason A. Scharfman (Author)

Book Description

ISBN-10: 0470372346 | ISBN-13: 978-0470372340 | Publication Date: December 3, 2008 | Edition: 1

How to diagnose and monitor key hedge fund operational risks

With 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, Hedge Fund Operational Due Diligence 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
of hedge funds, private equity, and real estate managers.

Editorial Reviews

Review

"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." (hedgeco.net, January 26th, 2009)

"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." (The Hedge Fund Law Report, January 8, 2009)

From the Inside Flap

Hedge Fund Operational Due Diligence

Understanding the Risks

One need only glance at the cover of the Wall Street Journal or turn on CNBC to learn about the latest debacle befalling hedge funds, due to poor operational oversight and controls. Long viewed by many hedge fund investment professionals as one of life's necessary evils and a distraction from the "real" business of investing, the field of operational due diligence has finally caught on today as an essential area of hedge fund risk management.

Filled with real-world examples drawn from the author's experiences dealing with the operational risks of a global hedge fund platform, Hedge Fund Operational Due Diligence: Understanding the Risks clearly outlines a flexible framework to enable you to diagnose a hedge fund's operational risks. This user-friendly, step-by-step guide shows you how to effectively detect and evaluate often-overlooked operational risk factors in hedge funds, such as multijurisdictional regulatory coordination, silo creation, operational drag, organizational nesting, and vaporware, to equip you with a complete understanding of the importance and benefits of a comprehensive operational due diligence program.

Designed to enable hedge fund personnel to perform self-diagnostic health checks and determine areas in which operational improvements are needed using the techniques described, this timely book:

• Features an analysis of the failed Bayou Hedge Fund Group, highlighting how operational risks can bring down an organization

• Explains how to diagnose and analyze the operational risks that may be present in a hedge fund

• Covers the primary, secondary, and blended operational risk factors present in the vast majority of modern hedge fund organizations

• Offers techniques for the modeling of operational risk

• Explores how to factor the results of operational risk analysis into the overall hedge fund asset allocation process

A strong operational infrastructure serves as a crucial backbone to the modern hedge fund, without which even the smartest money managers in the world could not thrive. Hedge Fund Operational Due Diligence: Understanding the Risks provides you with the necessary tools to effectively consider operational reviews in conjunction with investment reviews.

See all Editorial Reviews

Product Details

• Hardcover: 320 pages
• Publisher: Wiley; 1 edition (December 3, 2008)
• Language: English
• ISBN-10: 0470372346
• ISBN-13: 978-0470372340
• Product Dimensions: 9 x 6.1 x 1.5 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (7 customer reviews)
• Amazon Best Sellers Rank: #96,718 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

4 of 4 people found the following review helpful:

5.0 out of 5 stars Interesting and instructive, February 20, 2009

By 

James L. Davis (Chicago) - See all my reviews
(REAL NAME)   

This review is from: Hedge Fund Operational Due Diligence: Understanding the Risks (Wiley Finance) (Hardcover)

Good solid book. The author began this book by essentially stating that this is a subject that has been ignored for way too long. After reading this very instructive work I couldn't agree more - operational due diligence is a very important part of hedge fund investing, and this book was a great guide. I liked this book for several reasons, the biggest one being that it does not merely describe just a checklist or outline a due diligence questionnaire for hedge funds due diligence. The operational due diligence techniques described seemed to be practical and actually something people could implement. I also liked the historical perspective gave me a good context for everything I was reading too. I enjoyed the examples too. A lot of interesting points and was thought provoking for me.

6 of 7 people found the following review helpful:

5.0 out of 5 stars Useful Pragmatic Book, February 11, 2009

By 

M. Peterson (London) - See all my reviews

This review is from: Hedge Fund Operational Due Diligence: Understanding the Risks (Wiley Finance) (Hardcover)

I first picked up this book because I was looking for a good easy to follow hedge fund resource. I am an auditor and was interested in learning more about hedge funds in general and specifically the accounting/back office side of things. This book gave a nice over view of both.

It wasn't overly technical with useless jargon and I found the example scenarios outlined in the book to be straight forward and easy to understand. Overall good read which outlined audit tools with real world applications. I would recommend this book to accounting students, CPAs, or anyone who wants to learn more about hedge funds. Enjoy !

2 of 2 people found the following review helpful:

5.0 out of 5 stars Best book in the subject, January 23, 2009

By 

Sarah H. Morris "S. Morris" (Miami, USA) - See all my reviews

This review is from: Hedge Fund Operational Due Diligence: Understanding the Risks (Wiley Finance) (Hardcover)

I bought this book because I wanted to learn more about the due diligence process with all the hedge fund frauds like Madoff in the news. After reading this book it seems clear to me that if people actually listened to experts like Scharfman many people could have avoided losing a lot of money to people like Madoff.

I really liked the author's frank no-nonsense approach to due diligence. I feel like the writer really understands the ins-and-out of the process and breaks it down into simple terms. To me that's what made this a good read. The topic itself is a bit on the technical side, but after reading this book its clear to me that this is a very important part of hedge fund investing that has been neglected for too long.

The book begins by explaining what operational due diligence is and then lays out his approach to what factors should be covered. I found the section in the first Chapter on the history of operational due diligence very informative and give me a good perspective on the subject. The author goes on to make an argument why operational due diligence is important (as if he needed to in light of the news lately!), provide example case studies and outline the importance of on-going monitoring.

I especially enjoyed Chapter 5 "Evaluating the Gray Areas: Examples" which provides hypothetical scenarios an investor might come up against in doing these reviews. Each scenario was well written and easy to follow.

So to sum up, I would highly recommend this book to anyone thinking about investing in a hedge fund or just wanting to learn more about how to conduct proper due diligence. Happy reading!