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Latest Best Practices Focuses on Global Macro, Managed Futures

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GREENWICH, Conn. (–The latest best practices offering out of the Greenwich Roundtable tackles how to conduct due diligence for global macro and managed futures strategies contains a blend of practical advice applicable to any hedge fund investment, plus new ideas tailored specifically for the more esoteric realms that are the subjects of the guide.

“Best Practices in Hedge Fund Investing: Due Diligence for Global Macro and Managed Futures Strategies,” is the second in a planned series of best practices publications from the Greenwich Roundtable, a 10-year-old not-for-profit research and educational organization that has in the past specialized in attracting well-known industry leaders to participate in its symposia. In July 2005, the Roundtable released a best practices guide for due diligence on equity-based hedge funds.

This new publication reinforces many of the themes of that report and amplifies them to apply to global macro and managed futures. For instance, in addition to suggested basic questions like “What is the overall approach to portfolio construction?” and “To what degree is leverage employed in the portfolio and in what context?” the new guide probes specific issues relating to global macro and managed futures. To do this, the authors not only offer questions to ask, but general advice to help understand the possible answers.

“Style drift is harder to identify in global macro because this strategy encompasses a broad investment mandate,” according to the guide. “Global macro is typically opportunistic in nature. Therefore, it is much easier for macro managers to make a case for adding or removing market instruments and trading styles. When analyzing style drift in macro funds, it’s important to determine whether the manager’s investment approach has changed and, for example, what percentage of the fund’s profits and/or losses do these new strategies account for.”

Similarly, for managed futures: “While the systematic nature of managed futures strategies often forces diversification, the discretionary nature of global macro investing often provides considerable latitude to allocate capital. Try to determine how much risk the manager might place in a single trade, region, or asset class. Are there any rules that might prevent the manager from ‘betting the farm’ on a single trade or theme?”

Steve McMenamin, executive director of the Greenwich Roundtable, said in a statement that the organization’s education committee, which developed both best practices guides, considers it not only a tool for evaluating strategies but a document that fills a void in education, as well.

Nancy Solnik, co-leader of the Due Diligence Working Group at the Roundtable, said in a statement that global macro and managed futures are unique, and call for a unique perspective. “Our committee has produced a guide that provides investors with an understanding of the risks and opportunities of investing in these strategies, as well as a thought process to differentiate managers in this space,” she said.

The guide includes sections dealing with a fund’s strategies, investment process and market opportunities; team and organization; fee structure and terms; risk management; management company, fund structure and asset base; quantitative review; operations and transparency; third parties; intuition, judgment and experience; and documents.

The guide also provides definitions of global macro and managed futures.

More guides dealing with other hedge fund strategies are forthcoming from the Roundtable.

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Contact Bob Keane with questions or comments at [email protected].


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