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Alternative Market Briefing

Merlin's seven values for hedge funds

Thursday, May 27, 2010

Benedicte Gravrand, Opalesque London:

As well as a twelve-point guideline to best practice, Ron Suber, Senior Partner at U.S.-based hedge fund service provider Merlin Securities, also listed the minimum standards that hedge funds should adhere to in order to satisfy their investors at the recent SALT conference in Las Vegas.

Indeed, it is no longer enough to present net performance history, for example; hedge funds should show where the alpha is in those numbers. They should also explain their rationale for allocating the way they do. And demonstrate how they can avert different kinds of risks.

Furthermore, it is no longer enough to be a talent on the trading desk; one must also perform in the boardroom: hedge fund managers should make their presentation comprehensible, as clients tend to no longer invest if they feel even a little confused. Managers should also be wary of scale, and accept the new hedge fund zeitgeist graciously: it's all about being transparent now.

Here is Suber's list of minimum requisites:

The 4 Quantitative Minimums:

  • Articulation of your Alpha and Beta vs. your custom benchmark. We see investors separating Alpha and Beta performance and allocating differently to it - they are paying for Alpha and demanding accurate measurement of it.
  • Detailed asset allocation versus stock selection analytics (relative attribution)
  • Intra-month exp......................

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