Hedging Your Bets
Mixing long-only and long-short investment
| Date: | January 2005 |
| Author: | Catherine Doherty |
At the time of publication, there had been a surge in the number of traditional investment managers launching in-house hedge funds. Many investment management companies entered the hedge fund market as a defensive measure to prevent staff leaving - but realised additional benefits:
- Hedge funds improve the product offering and can generate better returns with a lower correlation to other, more traditional products.
- Hedge funds give managers access to a new source of clients - particularly at a time when many market commentators predict an influx of institutional client money into these funds.
- Hedge funds can generate additional income. The level of fees means it is possible to make a profit on even a small fund.
But the unregulated nature of these products is very different from investment managers' traditional product offering. This can lead to complications setting-up hedge funds and creating the operational processes and compliance policies needed to support them.
This report examines the benefits investment managers are likely to receive from running hedge funds and the golden rules for launching and supporting these funds alongside conventional long-only products.
Investit gathered a range of views and hard-earned experience from a selection of major players in this market. The report contains research gathered from institutional long-only and hedge fund clients, prime brokers and specialist administration companies.
Table of contents
| Management Summary | 3 | |||
| 1.0 | Introduction | 5 | ||
| 1.1 | Methodology | 6 | ||
| 1.2 | Terms and acronyms | 7 | ||
| 2.0 | An Introduction to KPIs | 9 | ||
| 2.1 | KPIs - the basics | 10 | ||
| 2.2 | The problem with KPIs | 12 | ||
| 2.3 | KPIs in business management | 13 | ||
| 3.0 | KPIs in Investment Management | 15 | ||
| 3.1 | An overview of investment management KPIs | 16 | ||
| 3.2 | Drivers for an industry-standard set of KPIs | 21 | ||
| 3.3 | An industry-standard approach to KPIs | 24 | ||
| 3.4 | Operational benchmarking using KPMs | 27 | ||
| 4.0 | KPIs in Outsourcing | 29 | ||
| 4.1 | The two levels of outsourcing | 30 | ||
| 4.2 | SLAs for outsourcing | 32 | ||
| 4.3 | Using KPIs in SLAs for outsourcing | 34 | ||
| 5.0 | A Structured Framework for KPIs | 37 | ||
| 5.1 | The need to formalise business management | 38 | ||
| 5.2 | A framework for investment management | 40 | ||
| 5.3 | Defining KPIs | 43 | ||
| 5.4 | KPMs | 44 | ||
| 5.5 | LAIs | 46 | ||
| 5.6 | Going beyond the structured framework | 48 | ||
| 5.7 | KPI management | 49 | ||
| 6.0 | Conclusions | 53 | ||
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