Jason Scharfman is the Managing Partner of Corgentum Consulting, a specialist consulting firm that performs operational due diligence reviews and background investigations of fund managers of all types, including hedge funds, private equity, real estate, and long-only funds on behalf of institutional investors, including pensions, endowments, foundations, fund of funds, family offices, and high-net-worth individuals. He is recognized as one of the leading experts in the field of due diligence and fund operations. He is the author of several publications including Private Equity Compliance: Analyzing Conflicts, Fees and Risks (2018), Hedge Fund Compliance: Risks, Regulation and Management (2016), Hedge Fund Governance: Evaluating Oversight, Independence, and Conflicts (2014), Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation, and Documentation (2012), and Hedge Fund Operational Due Diligence: Understanding the Risks (2008). Jason has also contributed to the Chartered Alternative Investment Analyst (CAIA) curriculum on due diligence, has served on the organization´s Due Diligence, Risk Management and Regulation Committee, and holds the CAIA charter.
Alternative investments such as hedge funds, private equity, and fund of funds continue to be of strong interest among the investment community. As these investment strategies have become increasingly complex, fund managers have continued to devote more time and resources towards developing best practice operations to support the actual trade processing, fund accounting, and back-office mechanics that allow these strategies to function. Representative of this operational growth, estimates have indicated that fund managers have seen increased operating budgets of 30% or more in recent years.
In today´s highly regulated environment, alternative investment managers have also increasingly had to integrate rigorous compliance and cybersecurity oversight into fund operations. Additionally, with recent advances in artificial intelligence and big data analysis, fund managers are devoting larger portions of their information technology budgets towards realizing technology-based operational efficiencies. Alternative investment fund service providers have also substantially increased their scope and breadth of their operations-related services. Furthermore, investors are increasingly performing deep-dive due diligence on fund manager operations at both fund level and management company levels.
This book provides current and practical guidance on the foundations of how alternative investment managers build and manage their operations. While other publications have focused on generalized overviews of historical trading procedures across multiple asset classes, and the technical intricacies of specific legacy operational procedures, Alternative Investment Operations will be the first book to focus on explaining up-to-date information on the specific real-world operational practices actually employed by alternative investment managers. This book will focus on how to actually establish and manage fund operations. Alternative Investment Operations will be an invaluable up-to-date resource for fund managers and their operations personnel as well as investors and service providers on the implementation and management of best practice operations.
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Offers detailed practical guidance on developing and managing an alternative investment operations program and step-by-step analysis of the modern operational mechanics behind hedge fund trading operations
Includes analysis of the unique operational practices employed by less liquid alternative strategies including private equity and fund of funds
Contains current examples of real-world alternative investment specific documentation including a fund operations manual, operations focused service level agreements, and operational committee procedural documentation
Comprises up-to-date case studies and demonstrative examples of operational best practices and failures
1 Introduction to Alternative Investment Operations
Introduction
Classifying Fund Manager Activities
Comparing Investment and Operational Functions
Operations Role in Facilitating Investment Procedures
Dependency of the Investment Function on the Operational Functions What Is Unique About Alternative Investments Operations?
Different Alternative Investment Strategies Merit Specific Operational Practices
Operational Risk Management: Trading Operations and Compliance Example
Chapter Summary
2 Trade Operations: Execution, Settlement and Reconciliation
Introduction to Trade Operations
What Is Being Traded
Trade Idea Generation
Trading Strategy Compared to Trade Idea Generation
Trade Implementation
Order Entry
Pre-Trade Blotters
Electronic Versus Physical Pre-Trade Blotters
Pre-Trade Compliance Checks
Trade Execution
Trade Give-Ups
Trade Confirmation
Trade Clearing
Trade Settlement
Trade Reconciliation
Trade Allocation
Human and Computer Trading
Chapter Summary
3 Cash Management, Oversight and Movement
Introduction to Cash Usage in Alternative Investments
Four Primary Categories of Cash
Cash Storage Locations
Master-Feeder Structure
Cash Accounts for Different Funds
Cash for Expenses
Expense Policies
Cash Movement for Expenses
Cash To Facilitate Trading
Cash Sweeping Frequency
Cash To and From Investors
Unencumbered Cash
Cash Controls
Cash Initiators and Approvers
Single Initiator Approver Model
Cash Threshold Model
Different Initiator Approver With No Threshold Model
Chapter Summary
4 Compliance Operations and Governance Considerations
Introduction to Compliance Operations and Governance Considerations
Mandatory Compliance
Sources of Mandatory Compliance Rules
Voluntary Compliance
Regulatory Guidance
Self-Imposed Obligations
Operational Compliance
Alternative Investment Governance Considerations
Chief Compliance Officer Models
Chief Compliance Officer Duties
Common Compliance Documents
Common Compliance Policies
Chapter Summary
5 The Role of Service Providers in Alternative Investment Operations
Introduction to Alternative Investment Service Providers
Fund Administrators
Conflict of Interest Considerations
Role in Valuation
Valuation Consultants
Compliance Consultant
Personal Trading Program Oversight
Electronic Communication Monitoring Oversight
Mock Audits
Other Services
Legal Counsel
Accountants and Auditors
Custodian
Other Service Providers
Chapter Summary
6 Information Technology Operations
Introduction to the Role of Technology in Operations
Information Security Policy
Information Technology Consultants
Data Rooms
Cybersecurity
Penetration Testing
Software Patches
Vendor Cybersecurity Analysis
Business Continuity and Disaster Recovery
Big Data in Alternative Investment Operations
Chapter Summary
7 Additional Operational Functions and Tasks
Introduction to Additional Operational Functions
Operational Risk Management
Fund Reporting
Human Resources Management
Security Master Files
Unique Identifiers: CUSIP and ISIN
Multiple Versus Universal Security Master Files
File Verification Sources
Trading and Valuation Implications
Insurance
Treasury Function
Portfolio Financing
Counterparty Management
Collateral and Margin Management
Chapter Summary
8 Private Equity Operations
Introduction to Private Equity Operations
Private Equity Structure
Private Equity Administration
Private Equity Valuation Policy Example
Private Equity Operations Funding Process
Funding Timelines
Capital Call Procedures
Private Equity Compliance
Case Study
Chapter Summary
9 Fund of Funds Operations
Introduction to Fund of Funds Operations
Operations Role in Liquidity Management
Redemption Timeline Management Example
Other Redemption Timing Considerations
Facility Management
Separately Managed Account Allocations
Fund of Funds Administration
Chapter Summary
10 Documenting and Analyzing Fund Operations
Introduction to Operations Documentation
Purposes of Fund Operations Documentation
Operational Change Management Tracking
Investor Facing Operations Documentation
Operational Due Diligence Questionnaire
Chapter Summary
11 Ongoing Operations Management, Training, Surveillance and Testing
Introduction to Operations Training, Surveillance and Testing
Operations Training
Three Types of Operations Training
Operational Procedures Gaps
Operations Testing and Surveillance
Operations Testing Schedules and Frequency
Internal Audit
Case Study
Chapter Summary
12 Analysis of Fund Operations and Future Trends
Introduction to Analysis of Fund Operations Through Operational Due Diligence
Who Performs Operational Due Diligence?
The Pre-Operational Due Diligence Processes
Pre-Due Diligence Step 1: Analysis of Other Due Diligence
Pre-Due Diligence Step 2: Developing a Review Timeline
Pre-Due Diligence Step 3: Constructing a Review Team
Alternative Investment Fund Manager Operational Due Diligence Process
Step 1: Document Collection and Analysis
Affiliated Fund Document Requests
Asking the Fund Manager to Complete a Questionnaire
Service Provider Documentation
Document Analysis
Stage 1: Functional Expert Review
Stage 2: Project Lead Review
Stage 3: 360° Team Review
Step 2: On-Site Meeting
Phase 1: Interviews
Phase 2: On-Site Document Review
Phase 3: System and process walkthroughs
Phase 4: Office Tour
Step 3: Service Provider Confirmation and Review
Step 4: Report Generation and Recommendations
Ongoing Operational Due Diligence
Future Operational Trends
Chapter Summary
Alternative investments such as hedge funds, private equity, and fund of funds continue to be of strong interest among the investment community. As these investment strategies have become increasingly complex, fund managers have continued to devote more time and resources towards developing best practice operations to support the actual trade processing, fund accounting, and back-office mechanics that allow these strategies to function. Representative of this operational growth, estimates have indicated that fund managers have seen increased operating budgets of 30% or more in recent years.
In today´s highly regulated environment, alternative investment managers have also increasingly had to integrate rigorous compliance and cybersecurity oversight into fund operations. Additionally, with recent advances in artificial intelligence and big data analysis, fund managers are devoting larger portions of their information technology budgets towards realizing technology-based operational efficiencies. Alternative investment fund service providers have also substantially increased their scope and breadth of their operations-related services. Furthermore, investors are increasingly performing deep-dive due diligence on fund manager operations at both fund level and management company levels.
This book provides current and practical guidance on the foundations of how alternative investment managers build and manage their operations. While other publications have focused on generalized overviews of historical trading procedures across multiple asset classes, and the technical intricacies of specific legacy operational procedures,Alternative Investment Operations will be the first book to focus on explaining up-to-date information on the specific real-world operational practices actually employed by alternative investment managers. This book will focus on how to actually establish and manage fund operations. Alternative Investment Operations will be an invaluable up-to-date resource for fund managers and their operations personnel as well as investors and service providers on the implementation and management of best practice operations.
Alternative investments such as hedge funds, private equity, and fund of funds continue to be of strong interest among the investment community. As these investment strategies have become increasingly complex, fund managers have continued to devote more time and resources towards developing best practice operations to support the actual trade processing, fund accounting, and back-office mechanics that allow these strategies to function. Representative of this operational growth, estimates have indicated that fund managers have seen increased operating budgets of 30% or more in recent years.
In today's highly regulated environment, alternative investment managers have also increasingly had to integrate rigorous compliance and cybersecurity oversight into fund operations. Additionally, with recent advances in artificial intelligence and big data analysis, fund managers are devoting larger portions of their information technology budgets towards realizing technology-based operational efficiencies. Alternative investment fund service providers have also substantially increased their scope and breadth of their operations-related services. Furthermore, investors are increasingly performing deep-dive due diligence on fund manager operations at both fund level and management company levels.
This book provides current and practical guidance on the foundations of how alternative investment managers build and manage their operations. While other publications have focused on generalized overviews of historical trading procedures across multiple asset classes, and the technical intricacies of specific legacy operational procedures, Alternative Investment Operations will be the first book to focus on explaining up-to-date information on the specific real-world operational practices actually employed by alternative investment managers. This book will focus on how to actually establish and manage fund operations. Alternative Investment Operationswill be an invaluable up-to-date resource for fund managers and their operations personnel as well as investors and service providers on the implementation and management of best practice operations.
1. Introduction to Alternative Investment Operations.- 2. Trade Operations: Execution, Settlement, and Reconciliation.- 3. Cash Management, Oversight, and Movement.- 4. Compliance Operations and Governance Considerations.- 5. The Role of Service Providers in Alternative Investment Operations.- 6. Information Technology Operations.- 7. Additional Operational Functions and Tasks.- 8. Private Equity Operations.- 9. Fund of Funds Operations.- 10. Documenting and Analyzing Fund Operations.- 11. Ongoing Operations Management, Training, Surveillance, and Testing.- 12. Analysis of Fund Operations and Future Trends.
Jason Scharfman is the Managing Partner of Corgentum Consulting, a specialist consulting firm that performs operational due diligence reviews and background investigations of fund managers of all types, including hedge funds, private equity, real estate, and long-only funds on behalf of institutional investors, including pensions, endowments, foundations, fund of funds, family offices, and high-net-worth individuals. He is recognized as one of the leading experts in the field of due diligence and fund operations. He is the author of several publications including Private Equity Compliance: Analyzing Conflicts, Fees and Risks (2018), Hedge Fund Compliance: Risks, Regulation and Management (2016), Hedge Fund Governance: Evaluating Oversight, Independence, and Conflicts (2014), Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation, and Documentation (2012), and Hedge Fund Operational Due Diligence: Understanding the Risks (2008). Jason has also contributed to the Chartered Alternative Investment Analyst (CAIA) curriculum on due diligence, has served on the organization's Due Diligence, Risk Management and Regulation Committee, and holds the CAIA charter.
