The Capital Report on Seeding and Incubation of Hedge Funds

Foreword
Peter Astleford, Co-Chair and Peter Draper, Partner, Financial Services Group, Dechert LLP, London.

Chapter One: The Basics of Seeding and Incubation
Ian Morley, Dawnay, Day Group, London.

Introduction
Finding the businesses to back
The due diligence process
The negotiating process
Exits
The business model
The psychology of being an entrepreneur
Strengths and weaknesses
Don’t micromanage the business
Managing the business going forward
Management information systems
Start-ups regulated by the Financial Services Authority
Risk management
Case study one
Case study two
Conclusion

Chapter Two: Alternative Investments: Myths versus Reality
Thomas Schneeweis, Director, CISDM, Isenberg School of Management, University of Massachusetts.

Introduction
Hedge funds and financial innovation
The world of hedge funds
Today’s issues

Chapter Three: Early Stage Investing: Why Emerging Hedge Funds Outperform in the Hedge Fund Life Cycle
John E. Dunn III, UBK Alternative Investments, Geneva and Tushar Patel HFIM Hedge Funds Investment Management Ltd., London.

Supporting the case for emerging funds
An emerging hedge fund defined
Why emerging hedge funds outperform
Innovation and evolution: New sources of returns
Generating returns from unique opportunities
Rapid decision-making structures
Unlocking new investment opportunities
Ability to generate returns from illiquidity
Benefits of smaller assets under management
Investing in smaller positions
Raw energy
Emerging managers’ motivation
Fee structure explains large fund underperformance
A hedge fund life-cycle approach to hedge fund manager selection
Emerging stage
The maturing stage
Established or matured stage
Conclusions

Chapter Four: Hedge Fund Legal Structures and their Impact on Performance
Bhaswar Gupta and Ed Szado, CISDM, Isenberg School of Management, University of Massachusetts.

Introduction
The legal nomenclature
Literature review
Data and methodology
Empirical results
Conclusions

Chapter Five: Exiting Hedge Fund Incubator Models
Peter D. Astleford, Chris Carrodus and Peter Draper, Dechert LLP, London.

Introduction
Needs and objectives of the incubatee
Needs and objectives of the incubator
Fees and costs
Planning for exit
Case studies
Example one
Example two
Forward planning

Chapter Six: Re-evaluating Effective Valuation, Risk and Controls
Lynn Connolly, Deloitte & Touche LLP, New York.

Regulatory guidelines and valuation concerns
New product developments and emerging valuation process
Transparency or translucency
Independence revisited
Portfolio risk management and quantifying the qualitative
Mitigating controls and procedures
Conclusion – current trends and recommendations

Chapter Seven: Factor Exposures and Hedge Fund Operational Risk: The Case of Amaranth
Bhaswar Gupta and Hossein Kazemi, CISDM, Isenberg School of Management, University of Massachusetts.