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According to Geneva-based Hedge Fund Appraisal, a provider of due diligence services to hedge fund investors, most hedge fund managers rely on sample testing of trades. HFA's latest newsletter describes the types of information that can be obtained from the analysis of trades.

An investment manager has usually full discretionary authority to direct Fund trades. As a result, the Firm is subject to a duty to obtain best execution for Fund securities transactions. The SEC has described this requirement generally as a duty to execute securities transactions so that a client's total costs or proceeds in each transaction are the most favorable under the circumstances. The SEC has also stated that when seeking best execution an adviser should consider the full range and quality of a broker-dealer's services in placing trades. The SEC has added that the best execution is not determined by the lowest possible commission costs, but by the best qualitative execution. Finally, the SEC has suggested that to ensure continuing compliance with the best execution duty, advisers should periodically and systematically evaluate the execution performance of broker-dealers executing their transactions.

Hedge Fund managers have not yet invested broadly on technology tracking post-trade execution quality. Most of them rely on sample testing of trades.

A recent study by Investment Technology Group, puts in perspective the types of information that can be obtained from the analy......................

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