Hedge Fund Operational Risk: Meeting the Demand for Higher Transparency and Best Practice
The Bank of New York
October 2006
Foreword
We are witnessing a dramatic evolution of investment behaviour in alternative investments, with both a phenomenal increase in the rate of flow of assets from institutional investors and a rapid maturation of the industry’s infrastructure. These are exciting times for hedge fund investment returns which have coincided with the changing composition of the investor pool. This is having a direct impact on the habits of investors in the more prosaic area of operational due diligence.
This white paper looks at the five key operational considerations investors should be evaluating when investing in a hedge fund and assessing its operational risks. These are identified as: (1) the experience of operations personnel; (2) compliance; (3) internal controls and procedures; (4) portfolio pricing; and (5) the quality of the service providers.
