Alternative Investment Operations: Hedge Funds, Private Equity, and Fund of Funds

ISBN-13: 9783030466312 / Angielski / Miękka / 2021 / 218 str.

Jason Scharfman

Opis

Alternative investments such as hedge funds, private equity, and fund of funds continue to be of strong interest among the investment community. As these investment strategies have become increasingly complex, fund managers have continued to devote more time and resources towards developing best practice operations to support the actual trade processing, fund accounting, and back-office mechanics that allow these strategies to function. Representative of this operational growth, estimates have indicated that fund managers have seen increased operating budgets of 30% or more in recent years.In today’s highly regulated environment, alternative investment managers have also increasingly had to integrate rigorous compliance and cybersecurity oversight into fund operations. Additionally, with recent advances in artificial intelligence and big data analysis, fund managers are devoting larger portions of their information technology budgets towards realizing technology-based operational efficiencies. Alternative investment fund service providers have also substantially increased their scope and breadth of their operations-related services. Furthermore, investors are increasingly performing deep-dive due diligence on fund manager operations at both fund level and management company levels.This book provides current and practical guidance on the foundations of how alternative investment managers build and manage their operations. While other publications have focused on generalized overviews of historical trading procedures across multiple asset classes, and the technical intricacies of specific legacy operational procedures, Alternative Investment Operations will be the first book to focus on explaining up-to-date information on the specific real-world operational practices actually employed by alternative investment managers. This book will focus on how to actually establish and manage fund operations. Alternative Investment Operations will be an invaluable up-to-date resource for fund managers and their operations personnel as well as investors and service providers on the implementation and management of best practice operations.

Spis treści

1         Introduction to Alternative Investment Operations  

 Introduction   

 Classifying Fund Manager Activities   

 Comparing Investment and Operational Functions   

Operations Role in Facilitating Investment Procedures   

Dependency of the Investment Function on the Operational Functions     What Is Unique About Alternative Investments Operations?   

Different Alternative Investment Strategies Merit Specific Operational Practices   

 Operational Risk Management: Trading Operations and Compliance Example 

Chapter Summary  

2         Trade Operations: Execution, Settlement and Reconciliation 

Introduction to Trade Operations  

What Is Being Traded  

Trade Idea Generation  

Trading Strategy Compared to Trade Idea Generation  

Trade Implementation  

Order Entry   

Pre-Trade Blotters  

Electronic Versus Physical Pre-Trade Blotters  

Pre-Trade Compliance Checks  

Trade Execution  

Trade Give-Ups  

Trade Confirmation

Trade Clearing

Trade Settlement

Trade Reconciliation

Trade Allocation

Human and Computer Trading

Chapter Summary

 

3         Cash Management, Oversight and Movement

Introduction to Cash Usage in Alternative Investments

Four Primary Categories of Cash

Cash Storage Locations

Master-Feeder Structure

Cash Accounts for Different Funds

Cash for Expenses

Expense Policies

Cash Movement for Expenses

Cash To Facilitate Trading

Cash Sweeping Frequency

Cash To and From Investors

Unencumbered Cash

Cash Controls

Cash Initiators and Approvers

Single Initiator Approver Model

Cash Threshold Model

Different Initiator Approver With No Threshold Model

Chapter Summary

 

4         Compliance Operations and Governance Considerations
Introduction to Compliance Operations and Governance Considerations

Mandatory Compliance

Sources of Mandatory Compliance Rules

Voluntary Compliance

Regulatory Guidance

Self-Imposed Obligations

Operational Compliance

Alternative Investment Governance Considerations

Chief Compliance Officer Models

Chief Compliance Officer Duties

Common Compliance Documents

Common Compliance Policies

Chapter Summary

      5     The Role of Service Providers in Alternative Investment Operations

Introduction to Alternative Investment Service Providers

Fund Administrators

Conflict of Interest Considerations

Role in Valuation

Valuation Consultants

Compliance Consultant

Personal Trading Program Oversight

Electronic Communication Monitoring Oversight

Mock Audits

Other Services

Legal Counsel

Accountants and Auditors

Custodian

Other Service Providers

Chapter Summary

 

6   Information Technology Operations

Introduction to the Role of Technology in Operations

Information Security Policy

Information Technology Consultants

Data Rooms

Cybersecurity

Penetration Testing

Software Patches

Vendor Cybersecurity Analysis

Business Continuity and Disaster Recovery

Big Data in Alternative Investment Operations

Chapter Summary

 

7              Additional Operational Functions and Tasks

Introduction to Additional Operational Functions

Operational Risk Management

Fund Reporting

Human Resources Management

Security Master Files

Unique Identifiers: CUSIP and ISIN

Multiple Versus Universal Security Master Files

File Verification Sources

Trading and Valuation Implications

Insurance

Treasury Function

Portfolio Financing

Counterparty Management

Collateral and Margin Management

Chapter Summary

      

8      Private Equity Operations

Introduction to Private Equity Operations

Private Equity Structure

Private Equity Administration

Private Equity Valuation Policy Example

Private Equity Operations Funding Process

Funding Timelines

Capital Call Procedures

Private Equity Compliance

Case Study

Chapter Summary

 

      9    Fund of Funds Operations

Introduction to Fund of Funds Operations

Operations Role in Liquidity Management

Redemption Timeline Management Example

Other Redemption Timing Considerations

Facility Management

Separately Managed Account Allocations

Fund of Funds Administration

Chapter Summary

 

10     Documenting and Analyzing Fund Operations

Introduction to Operations Documentation

Purposes of Fund Operations Documentation

Operational Change Management Tracking

Investor Facing Operations Documentation

Operational Due Diligence Questionnaire

Chapter Summary

 

11      Ongoing Operations Management, Training, Surveillance and Testing

Introduction to Operations Training, Surveillance and Testing

Operations Training

Three Types of Operations Training

Operational Procedures Gaps

Operations Testing and Surveillance

Operations Testing Schedules and Frequency

Internal Audit

Case Study

Chapter Summary

 

12      Analysis of Fund Operations and Future Trends

Introduction to Analysis of Fund Operations Through Operational Due Diligence

Who Performs Operational Due Diligence?

The Pre-Operational Due Diligence Processes     

Pre-Due Diligence Step 1: Analysis of Other Due Diligence

Pre-Due Diligence Step 2: Developing a Review Timeline

Pre-Due Diligence Step 3: Constructing a Review Team

Alternative Investment Fund Manager Operational Due Diligence Process

Step 1: Document Collection and Analysis

Affiliated Fund Document Requests

Asking the Fund Manager to Complete a Questionnaire

Service Provider Documentation

Document Analysis

Stage 1: Functional Expert Review

Stage 2: Project Lead Review

Stage 3: 360° Team Review

                                Step 2: On-Site Meeting

Phase 1: Interviews

Phase 2: On-Site Document Review

Phase 3: System and process walkthroughs

Phase 4: Office Tour

Step 3: Service Provider Confirmation and Review

Step 4: Report Generation and Recommendations

Ongoing Operational Due Diligence

Future Operational Trends

Chapter Summary

 

 

 

 

 

 

 

 

 

 

 

 

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O autorze

Jason Scharfman is the Managing Partner of Corgentum Consulting, a specialist consulting firm that performs operational due diligence reviews and background investigations of fund managers of all types, including hedge funds, private equity, real estate, and long-only funds on behalf of institutional investors, including pensions, endowments, foundations, fund of funds, family offices, and high-net-worth individuals. He is recognized as one of the leading experts in the field of due diligence and fund operations. He is the author of several publications including Private Equity Compliance: Analyzing Conflicts, Fees and Risks (2018), Hedge Fund Compliance: Risks, Regulation and Management (2016), Hedge Fund Governance: Evaluating Oversight, Independence, and Conflicts (2014), Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation, and Documentation (2012), and Hedge Fund Operational Due Diligence: Understanding the Risks (2008). Jason has also contributed to the Chartered Alternative Investment Analyst (CAIA) curriculum on due diligence, has served on the organization’s Due Diligence, Risk Management and Regulation Committee, and holds the CAIA charter.