From the February 01, 2010 issue of Futures Magazine • Subscribe!

Managing hedge fund managers: Quantitative and Qualitative Performance Measures

Managing Hedge Fund Managers: Quantitative and Qualitative Performance Measures
By Edward J. Stavetski
John Wiley & Sons, Inc.
$85.00; 258 pages

Cloaked in an aura of mystery, the hedge fund world is a complex place with few overt regulations to guide the investor. In his book, “Managing Hedge Fund Managers,” Edward Stavetski clearly points this out, saying, “to many investors, the hedge fund world is shrouded in secrecy and compounded by complicated structures and investment vehicles.” Stavetski, however, pulls back the cloak, exposing the complicated structure of hedge funds and the reality of investing in hedge funds and defining quantitative measures to assess hedge funds.

He does a fine job with material that is dry and often boring. One technique he utilizes to overcome the rather tedious job of explaining the complex concepts and the investment process is logical flow. Beginning with the guidelines of the Investment Policy Statement, he takes the reader through the quantitative analysis measures, qualitative rankings for assessment, and the process of monitoring hedge fund managers to make sure your investment is both producing returns and is safe. One enduring idea that emerges from this logical presentation is that helpful answers are not produced from the numbers; rather, helpful answers come from asking the appropriate questions. The book helps you define the appropriate questions.

It is difficult to reduce Stavetski’s book to a few specific examples that capture his mission, as it is filled with page after page of detailed information. Suffice it to say, if you are interested in hedge funds as an investment, you will find everything you need to know in this book. Just be patient and be willing to do some work to get through it. The writing is good, but the subject matter is worthy of two mathematical lovers having a chat over coffee. No matter how informal or easy the flow, the topics will still your non-mathematical mind.

Stavetski does not gloss over the shady aspects of the hedge fund world, nor does he play down the risks of investing in this world. The former is inherent in the described secrecy of hedge funds, and the latter is completely exposed in Chapter 5. Both are huge red flags for any investor, but if you are going into hedge funds, the book clears the path of any illusions, and it lays down a solid surface upon which to travel.

Stavetski is a Certified Financial Advisor and he has contributed to TheStreet.com, Investopedia, and Real Money, so he writes from a solid knowledge base. The information is worthwhile, but that is not the question for you as an investor. No, the question for you is, can you take the information he lays out and convert it to a healthy return on investment? Read the book and then find out.

Brandon Jones is an entrepreneur, a writer and an educator. Although not a trader by profession, he trades on a regular basis to maintain and improve his portfolio return.

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