Funds, Hedge Funds & Asset Managers

A three-day intensive case study based workshop offering a structured approach to the analysis of both local and international regulated funds, hedge funds and investment managers.

Objectives 
The goal of the workshop is to equip participants with a structured analytic framework for the analysis of both regulated and alternative investment funds and asset managers.

Participants will learn to: 
1. Evaluate the risk profile of a fund's structure, investment strategy, structure, leverage and liquidity
2. Use key performance indicators to benchmark performance and credit standing of both funds and fund managers.
3. Identify the due diligence required for evaluating the fund manager's expertise, investment process, risk management and controls as well as the role of other parties involved in the fund
4. Understand the importance of the legal, regulatory and supervisory framework on funds and fund managers.
5. Structure exposures to funds and fund managers in order to minimise credit risks.

Target Audience:
Commercial and investment banking professionals responsible for credit risk management and origination. The workshop is also appropriate for a wider audience of risk managers, consultants, bankers, regulators and other professionals who need to understand the key risk issues of the asset management industry.

Content 
INDUSTRY OVERVIEW 
The goal of this section is to distinguish the structure, legal status, investment strategy and risk profile of different types of regulated and alternative investment funds.

Orientation:
1. Types of fund - mutual funds, pension funds, managed accounts, closed-end funds and investment trusts, hedge funds, private equity, tracker and exchange traded funds (ETFs), fund of funds, umbrellas, master feeders, REITs 
2. Structure and legal status of funds and managed accounts, notice periods and liquidity provisions 
3. Focus on pension funds and key challenges of under-funding 
4. Jurisdiction: offshore registrations, listings, manager domicile.

Goals:
1. Absolute vs. benchmarked returns 
2. Alpha vs. beta; portable alpha 
3. Minimising correlations 
4. Fee structures: upfront and performance; high water marks

Investment strategies:
1. Fund policies, practices and restrictions 
2. Investment strategies - risk profile of strategy and policies 
3. Traditional strategies - fixed income (money market, bond, municipals) equity and specialist funds; growth, value and balanced strategies; capital guaranteed structures 
4. Alternative strategies: use of derivatives and leverage 
5. Directional Strategies: global macro, long / short equity, managed futures, dedicated short funds, emerging markets 
6. Relative value strategies: equity market neutral, fixed income arbitrage, convertible arbitrage 
7. Other: event driven: distressed, risk arbitrage; multi-strategy, fund of funds 
8. Techniques to optimise risk adjusted returns: leverage, derivatives and short selling.

- ANALYTIC OVERVIEW:
The goal of this section is to highlight the key credit issues that arise from exposures to funds and fund managers and to demonstrate the different perspectives of rating approaches. 

Structured approach to analysis:
1. Purpose of transaction and sources of payback - Who is the counterparty? What assets or derivatives are being financed? How will the transaction be settled or the repaid at maturity? 
2. Risk analysis - operating environment, financial fundamentals and management 
3. Structure - risks and mitigants of the transaction.

Perspectives on analysis:
•Fund ratings - rating agencies, Morningstar and other ratings 
•Information sources - prospectus, financial & portfolio statements.

RISK ANALYSIS:
I. Operating Environment:
The goal of this section is to review the key macro economic, competitive and regulatory drivers of risk and performance in the asset management sector.

Macro and competitive drivers:
•Competitive drivers in sub-sectors of the industry - institutional, retail, wealth management. 

Regulation and supervision:

1. Mutual funds - investment and leverage limits, disclosure 
2. Pension fund regulation - funded status; investment limitations 
3. Hedge fund regulation - increasing regulation of both funds and fund managers in different jurisdictions 
4. Fund manager regulation; capital adequacy, licensing, business practices 
5. Exercise: distinguishing regulations in Asian, Western and offshore jurisdictions.

II. Financial Fundamentals:
The goal of this section is to benchmark and evaluate the key performance indicators for both regulated and hedge funds.

Key performance indicators:
1. "S": Size - reviewing size, diversification and market position of fund 
2. "M": Market risk - volatility measures e.g. standard deviation, VaR 
3. "A": Asset quality - liquidity and valuation of assets, haircuts 
4. "L": Liquidity - redemption risk on open-end funds, benefits of capital locks, back up credit lines 
5. "L": Leverage - use of financial and derivative leverage; funded status for pension funds, gross and net leverage calculations 
6. "P": Performance - bench marking performance - NAV measures, information, Sharpe and Sortino ratios; peak to trough drawdown.

Early warning signals
•Summary of major failures & causes
•Common themes.

III. Management:
The goal of this section is to review the roles and responsibilities of key players in a fund with a particular focus on due diligence required for the fund manager.

Key parties
•Roles and responsibilities of various parties: manager, trustee, directors, prime broker, administrator, custodian etc.
•Benchmarks for minimum disclosure and valuation methodology.

Due diligence fund manager:
1. Business structure - staff and organisation - experience levels; size, affiliation 
2. Independence and controls - affiliation; conflicts of interest 
3. Investment process - structure and implementation of portfolio management decision making 
4. Risk management - operational, market, credit and regulatory 
5. Communication - disclosure and client relationship management.

Fund manager as counterparty:
1. Purpose payback - Why do fund managers borrow and how do they service debt? 
2. Risk profiles of different business models 
3. Financial analysis: performance measurement, cash flow analysis, balance sheet strength 
4. Early warning signals of deterioration or regulatory challenge.

STRUCTURE:
The goal of this section is to review the types of transactions entered into with funds and recommend facility structures which meet client need and safeguard the position of the counterparty. 

1. Structured approach: Using the purpose payback model to evaluate transactions 
2. Types of risk when dealing with funds: credit, market, operational, reputation 
3. Impact of prime brokerage relationships on the risk profile 
4. Exposure profile: assessing the appropriateness of the structure in terms of amount, maturity etc. 
5. Ranking: establishing and maintaining a senior position 
6. Safeguards: collateral, unsecured thresholds, covenants, break clauses and other; ISDA and CSA documentation 
7. Collateralisation of trading transactions; matching margining approach to risk.

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