Il processo di due diligence
in un Fondo di Hedge Funds
Centro di Studi Bancari
Villa Negroni
18 giugno 2004
Dr. Massimo Scolari
Zenit Alternative Investments
1
Zenit Alternative Investments Sgr
Profilo della Società
• Zenit Alternative Investments Sgr è una Società del gruppo P.F.M.
Finanziaria – Professional Fund Management.
• Zenit Alternative Investments Sgr è una Società di gestione di fondi comuni
di investimento di tipo speculativo autorizzata dalla Banca d’Italia nell’agosto
2002 ed iscritta all’Albo delle Sgr n.149.
• Nel maggio del 2003 la Società ha avviato l’operatività del primo Fondo di
Fondi Speculativo, Zenit Hunter, Fondo multistrategy low volatility.
• Nel maggio del 2004 la Società ha ottenuto l’autorizzazione della Banca
d’Italia per l’avvio di un nuovo Fondo di Fondi Speculativo, Zenit Advanced
Strategies, che amplia la gamma dei prodotti nell’ambito della gestione
alternativa.
2
Summary
1. Perché gli Hedge Funds falliscono? (pag.4)
2. L’importanza del processo di due diligence
(pag.6)
3. Il nostro approccio (pag.13)
4. Sound practises for hedge funds managers
(pag.17)
5. La due diligence di un fondo di hedge funds
(pag.30)
3
Le cause dei fallimenti
degli hedge funds
•
•
•
Da una ricerca condotta da C. Kundro e S.Feffer (Capco)
su un campione di 100 casi di fallimento è emerso che:
Il 6% ha chiuso per il rischio di business
Il 38% per scelte di investimento sbagliate
Il 50% a causa di rischi operativi
4
Fallimenti e rischi operativi
• Il 41% dei fallimenti per rischi operativi ha avuto origine
in false dichiarazione del gestore
• Il 30% per frodi e appropriazione indebita
• Il 14% per investimenti fuori dalle linee guida
• 6% per strumenti tecnologici inadeguati
5
Fonte: Frank J. Travers Director of Research Cic Group, Inc.
6
Fonte: Frank J. Travers Director of Research Cic Group, Inc.
7
Fonte: Frank J. Travers Director of Research Cic Group, Inc.
8
Fonte: Frank J. Travers Director of Research Cic Group, Inc.
9
Fonte: Frank J. Travers Director of Research Cic Group, Inc.
10
Fonte: Frank J. Travers Director of Research Cic Group, Inc.
11
Fonte: Frank J. Travers Director of Research Cic Group, Inc.
12
Il nostro approccio:
Considerazioni introduttive
•
•
•
•
•
Il prospetto informativo (offering memorandum)
Due diligence come processo continuo
Il controllo incrociato delle informazioni
Caratteristiche della comunicazione dei Nav
Sound practises for hedge funds managers
13
Manager selection
Fonti di informazione
•
•
•
•
Database esterni
Adviser
Relazioni personali
Articoli di stampa o siti specializzati
14
Processo di selezione
• Criteri oggettivi e soggettivi per l’inclusione nella
Selection list
• Metodi di analisi quantitativa (risk report)
• Processo di analisi qualitativa (due diligence)
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Due diligence
Analisi dell’Offering memorandum e del sito internet della Società
Questionario iniziale (informazioni mancanti)
1° Incontro (Junior)
2° Incontro (Senior)
Controllo incrociato delle informazioni (fonti esterne)
Confronto con l’analisi quantitativa
Relazione al Comitato “Due diligence” e predisposizione di una
scheda analitica del manager (qualitativa e quantitativa)
8. Monitoraggio Nav (frequenza, timing, accuratezza)
9. Monitoraggio Client report
10. Proposta di investimento al Comitato Investimenti
11. Visite periodiche di aggiornamento
12. Reporting trimestrale al Comitato “Due diligence”
1.
2.
3.
4.
5.
6.
7.
16
Sound practises for
Hedge fund managers
• Il documento è pubblicato da Managed Funds Association
(2003)
• Mfa raccoglie oltre 700 membri che gestiscono una
significativa quota del mercato degli Hedge funds.
• Web: www.mfainfo.org
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Sound practises for
Hedge fund managers
1. La politica di gestione ed i controlli interni, con
partcolare riferimento ai parametri di rischio e al
monitoraggio del trading
2. Responsabilità nei confronti degli investitori
3. Procedure per la corretta valutazione degli asset
4. Risk management (measurement and
monitoring) funzionale al rispetto degli obiettivi
5. Controlli regolamentari e compliance
6. Business continuity, disaster recovery
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1. Management and
internal controls
Consistent with its investment mandate, a Hedge Fund Manager
should define the investment objectives and risk parameters
applicable to a Hedge Fund, and the trading policies and risk
limits necessary to achieve these objectives, in accordance with
the investment management agreement with the Hedge Fund.
Suitably qualified personnel should be retained and adequate
systems established (either internally or through outsourcing) to
produce periodic reporting that permits the Hedge Fund
Manager to monitor trading activities and operations as well as
risk levels effectively. If third-party service providers perform key
business functions (such as net asset value calculation or risk
monitoring), they also should be subject to appropriate controls
and review processes.
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Attività di gestione e
controlli interni
• Definizione degli obiettivi del Fondo e dei parametri di
rischio
• Definizione delle strategie di trading e dei limiti di rischio
compatibili
• Controlli interni sul rispetto della policy e dei limiti di
rischio
• Allocazione del capitale del Fondo tra diversi manager.
Controlli integrati sull’attività
• Terze parti: metodo di selezione e di monitoragio
dell’attività (prime brokers, Fund Administrator, Valuation,
Risk monitoring ecc.)
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Monitoraggio del rischio
• La funzione di risk management deve essere istituita
(interna o esterna)
• Esame dei rischi di mercato e della performance
• Scomposizione
• Esposizione a shock esogeni
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2. Responsabilities to
investors
A Hedge Fund Manager should work together with the
Hedge Fund so that investors are provided with
information regarding the Hedge Fund’s investment
objectives and strategies, as well as periodic
summary performance information, in order to
enhance the ability of investors to determine the
appropriateness of an investment in the Hedge Fund.
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3. Valuation policies
and procedures
A Hedge Fund Manager should determine policies for
the manner and frequency of computing net asset
value, or “NAV”, based upon GAAP (as defined
below) and its management agreement with the
Hedge Fund and seek to ensure that material
aspects of those policies are appropriately disclosed.
Such policies should establish valuation methods that
are fair, consistent and verifiable, recognizing that
investors may both subscribe and redeem interests in
the Hedge Fund in reliance on such values. A Hedge
Fund Manager should also develop policies for the
manner and frequency of computing portfolio
valuation for purposes of internal risk monitoring of 23
the portfolio.
4. Risk monitoring
Current market practice is to focus on three
categories of risk that are measurable –“market risk,”
“credit risk” (including sovereign risk) and “liquidity
risk”. In addition a Hedge Fund Manager should seek
to assess “operational risk” depending on its
particular circumstances.
24
25
Funding Liquidity risk
Funding liquidity is critical to a Hedge Fund
Manager’s ability to continue trading in times of
stress. Funding liquidity analysis should take into
account the investment strategies employed, the
terms governing the rights of investors to redeem
their interests and the liquidity of assets (e.g., all
things being equal, the longer the expected period
necessary to liquidate assets, the greater the
potential funding requirements) and the funding
arrangements negotiated with counterparties such as
prime brokers. Adequate funding liquidity gives a
Hedge Fund Manager the ability to continue a trading
strategy without being forced to liquidate assets when
26
losses arise.
Leverage
A Hedge Fund Manager should recognize that,
although leverage is not an independent source of
risk, leverage is important because of the magnifying
effect it can have on market risk, credit risk and
liquidity risk. Recognizing the impact that leverage
can have on a portfolio’s exposure to market risk,
credit risk, and liquidity risk, a Hedge Fund Manager
should assess the degree to which a Hedge Fund is
able to modify its risk-based leverage in periods of
stress or increased market risk.
27
5. Regulatory and
documentation controls
A Hedge Fund Manager should seek to actively
monitor and manage its regulatory responsibilities to
ensure compliance with all applicable rules and
regulations.
A Hedge Fund Manager also should pursue a
consistent and methodical approach to documenting
transactions in order to enhance the legal certainty of
its positions.
28
6. Disaster recovery and
business continuity
While the need to establish a functional disaster
recovery and business continuity plan (“BCP”) is not
unique to Hedge Funds, it is particularly important for
a Hedge Fund Manager because the inability to carry
out routine trading and risk monitoring functions
(even on a very short-term basis) as a result of a
disruption could result in large financial losses.
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Funds of hedge funds
Questionario Aima
1. Background Information
2. Product Information
3. Performance
4. Asset Allocation/Style Allocation
5. Due Diligence/Manager Selection
6. Portfolio Construction
7. Risk Management
8. Administration/Operations
9. Client Information/Reporting
10. Compliance/Legal
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BACKGROUND information
Company name:
Address:
Telephone:
Fax:
E-mail:
Website:
Name of contacts:
Title of contacts:
Telephone of contacts :
E-mail of contacts:
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Company Background
• Provide a history of the main business activities of the
Company since inception with the most important
milestones:
• Who were the founders of the Company? if they are no
longer with the company, why did they leave?
32
• Outline the intended future direction of the Company or
Group (including activities outside the fund of fund
business)
• What is the projected growth of assets under management
and employees?
• What are the critical success factors in achieving the
business plan?
• What is the firm’s peak capacity given the constraints of
your strategy?
• Do you currently have any expansion plans (new funds,
additional tranches)?
• How much money could be managed under the current
trading methodology without being restricted by position
limits?
33
• Provide details of the firm’s current ownership structure
and any changes in the last three years:
• Provide an organisation chart:
34
Staff information
• How many employees does the Company have?
How many are employed in the fund of funds activity?
• Please split your current staff amongst the following
activities, providing details of experience and tenure:
 Portfolio Management
 Fund Research & Due Diligence
 Client Services
 Operations
35
• Explain any significant employee turnover:
• How does the Company attract new people?
• Provide a brief background of key personnel (education,
professional background):
• Explain the compensation scheme for key personnel.
36
Asset management activities
• Does the firm conduct any other business than asset
management in alternative investments? State the nature
of those other businesses:
• Does the firm manage investments of other asset classes
(incl. traditional assets), too? If so, explain:
• Does the firm manage funds of funds in different
strategies? If so, describe:
• Which investor group does the firm primarily target?
• Provide a list of main clients (incl. size of assets, duration
of client relationship):
37
• What are the current assets under management?
• Show a breakdown of assets under management by:
- Client group
- Strategy
• What is the greatest percentage of assets under
management represented by any single and by the three
largest clients?
38
Product information – General
• Provide a short description of all products (public and
private, where disclosure possible) of the firm, e.g. fund of
funds, advisory mandates, client portfolios, structured
products, etc. Include at least:
39
• Investment objective (including target return and target
risk)
• Target investors
• Legal structure
• Asset allocation
• Number of funds in the portfolio
• Current size
• Date of inception
• Fee structure
• Conditions for Subscriptions and Redemptions
40
• Provide a breakdown of assets under management by Fund
including Investment Style; Inception Date; and targeted
Risk/ Return: (Fund of fund business only)
• Does the Company apply leverage to some or all of its
products? If so, please explain:
41
Performance
• Provide historical performance data for all products (in
electronic form, where possible), including:
• Monthly returns
• Standard deviation (annualised)
• Three largest drawdowns and recovery periods
• Percentage of positive/negative months
42
• Discuss the performance of each fund including any
significant events or drawdowns. To what extent has
performance varied from the targets?
• Describe the worst performing manager in which you have
invested. Describe the reason for the poor performance &
how it was dealt with:
• State which underlying fund was held for the shortest
period of time as well as the duration & reason for this:
• State in which period performance is actual or pro forma
(backtracked)?
• Is performance net of fees to the investor?
43
Asset allocation/
Style allocation
• Describe the firm’s asset allocation process:
• On what basis does the firm define and change the asset
allocation of the portfolios?
• On what periodicity is the asset allocation of the portfolios
reviews?
• For non-standard products, to what extent can the investor
be involved in the asset allocation process?
• Do investment guidelines exist for all products? If so,
please provide sample:
• How can the guidelines be altered?
44
Due diligence/
Manager selection
• On what principles are the firm’s due diligence process
based?
• Describe in detail the firm’s due diligence process.
Provide examples of reports and working papers, where
available:
• Name the minimum requirements (killer criteria) a
manager has to meet, if any, to pass the due diligence:
• Do you conduct on-site visits with the managers?
45
• How much time is spent with each manager during the due
diligence process?
• Before initial investment
• Every following year
• How many new managers do you analyse per year? In
how many of the analysed managers do you finally invest?
• Do you carry out due diligence checks on the administrator
or any other service provider to the target investee funds?
If so, please describe:
• How many managers are currently on your approved list?
• How much capacity is available from managers on the
approved list? Please provide breakdown by strategy:
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Portfolio construction
• Explain the qualitative and quantitative criteria used in
your portfolio construction process:
• State the average turnover of managers within the
portfolios:
• Does the turnover of managers in different portfolios vary
substantially?
• What are the main reasons for managers to be excluded
from an existing portfolio?
47
• Has a manager included in a portfolio of the firm ever gone
out of business due to losses? If yes, what are the lessons
learnt from that experience and how have they been
applied to your business?
• Are portfolios transparent to the investor?
• How does the firm secure capacity with top class managers
now and in the future?
• What is the competitive edge in the firm’s investment
strategy?
• How sustainable is this competitive edge?
48
Risk management
• Does the company maintain a written risk management
policy? If yes, provide a copy:
• What risk management concepts does the firm apply to its
portfolios?
• Describe the firm’s quantitative risk management tools.
Provide examples, where available:
• Does the firm apply leverage to some or all of its products?
If so, please explain:
• Does the firm maintain a firm wide risk management
system including operational, legal, reputational and
business risks? If so, please describe:
49
Administration/
Operations
• Provide an overview of the process used for recording,
settling and reconciling investments in underlying funds,
including:
• A time schedule outlining key milestones in the investment
process.
• The process used to record & confirm transactions with
underlying funds.
• The settlement & clearing process used.
• The process used for independently calculating & reporting
the NAV of both individual funds and the fund of fund
overall.
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• Outline the major operational risks faced & the controls in
place to monitor & manage these risks:
• If services are outsourced:
• Which tasks are fulfilled by external service providers
(include names of companies?
• How long have the relationships with those service
providers lasted?
• Has the firm ever terminated any service providers
(including auditors)? If so, explain the circumstances.
• Provide a full description of fee arrangements with any
service providers.
• Does any ownership or other legal relationship exist
between any service provider & any other organisation
stated in this document?
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• How often are estimated / final NAVs provided?
• Is the NAV of the Fund externally published (eg
Bloomberg/Reuters)?
• Detail the valuation source & frequency (daily, weekly,
monthly) of valuations for underlying funds. Are these
valuations verified independently?
• Provide details of all bank accounts of the Fund.
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• Who is authorised to transfer funds from the custody
account? What controls are in place to ensure the funds
are adequately safeguarded?
• Do you keep any cash on hand to meet liquidity needs?
• Describe the back-up and recovery facilities available to
maintain the functioning of the business in the event of a
major unforeseen event: (eg fire damage to main offices.)
53
Client Information/
Reporting
• What kinds of reports are sent to investors? Provide
sample reports:
• Can investors receive customised reports?
• What is the periodicity of the reporting?
• Are audited reports available to the investor? Provide
sample:
• Does the company publish regularly in the press? Provide
sample:
• Has the company published or commissioned any
research/academic papers? Provide samples:
54
Compliance/Legal
• Is the firm registered with any regulatory and/or
supervisory bodies?
• When was the last inspection of those bodies?
• Provide details of any legal disputes (within the last 5
years) or litigation in which the Company and/or any of the
Funds, Managers, Advisors, Custodian or any other
company within the group is involved:
• Does the company have a full time compliance officer?
• Does the company have a written compliance manual? If
yes, please provide a copy:
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• Provide a list of professional counterparties the firm
maintains a business relationship with:
•
Custodians
•
Administrators
•
Legal advisors
•
Auditors
•
Banks
•
Distribution channels
•
External marketers
•
Other important business partners
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• Detail any changes in any of the service providers above in
the past 5 years, including reasons for the change
• Provide a summary of the current insurance arrangements
of the company & a brief description of what that
insurance covers:
• Outline the procedures in place to prevent money
laundering activities – particularly associated with the
receipt of subscriptions from investors:
• How does the firm ensure an alignment of interests
between the firm, as fund manager, and the investor?
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• How much of the firm’s or the partners’ money is invested
in the firm’s products?
• Are there any conflicts of interest of which the investor
should be aware?
• Distribution of single manager funds?
• Consulting or brokerage arrangements with single
manager funds?
• Brokerage arrangements?
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Zenit Alternative Investments Sgr
Via Privata Maria Teresa 7
20123 Milano Italy
Web www.zenitalternative.it
Tel +39.02.806071
Massimo Scolari
[email protected]
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