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The Future of Hedge Fund Investing: A Regulatory and Structural Solution for a Fallen Industry


Praise for
The Future of Hedge Fund Investing

"The Future of Hedge Fund Investing is an excellent survey of the hedge fund industry landscape. Monty Agarwal's treatment of the subject serves as a thoughtful guide for investors in hedge funds and their managers. The book references a variety of recent events that are sure to shape the industry's future. At the same time, it offers practical, useful insights and model solutions to those who wish to successfully navigate the complexities and challenges of hedge fund investing. A highly recommended read."—Sharath M. Sury, Dean's Executive Professor of Finance, Santa Clara University; Adjunct Professor of Economics, University of California; Director, Institute of Financial Innovation & Risk Management; and former CEO, S4 Capital Family Office

"While hedge funds flounder and regulators fiddle, Monty Agarwal is the first to objectively diagnose the industry's dysfunctions and provide a solid road map for its rehabilitation. This book is an absolute must for investors who got burned by hedge funds in the past and for anyone who wants to use hedge funds for wealth-building in the future."—Martin D. Weiss, author of the New York Times bestseller, The Ultimate Depression Survival Guide

"As a fund of funds manager, I found Agarwal's 'other-side-of-the-table' perspective of having managed his own hedge fund to be entertaining and informative. His unique insight on how to approach various situations along the due diligence process in order to make the best investment decisions is invaluable to even the most experienced professionals in this business."—Alan Cheng, CFA, Portfolio Manager, Contego Capital Partners

"An in-depth look at the inner workings of the hedge fund industry. Agarwal clearly outlines some of the basic groundwork that must be done by investors interested in hedge funds. Filled with anecdotes and some clever analyses that expose a few of the recent illegal schemes in the financial industry, this is a must-read for any investor."—Arvind Hariharan, Global Head of Commodity Hybrids, Standard Bank

"This is a timely, entertaining, and thought-provoking book that challenges the prevailing investment allocation model in the hedge fund community. Agarwal uses his unique perspective as an experienced, successful trader and hedge fund manager to analyze recent hedge fund frauds and meltdowns and to suggest a new, superior methodology for hedge fund investing."—Jamie Lesher, Partner, Coronado Investments, LLC

Monty Agarwal worked as an interest rate and currency trader on Wall Street between 1995 and 2003. From 2003 to 2008, he was a portfolio manager in the hedge fund industry. Agarwal founded Predator Capital Management, which had $500 million under management, where he was the portfolio manager of an Asia-focused interest rate and currency market strategy. Agarwal also served as a portfolio manager for III Funds. He holds a bachelor's degree in computer science and engineering from the University of Pennsylvania and an MBA, with a concentration in finance and business economics, from the University of Chicago Booth School of Business. Visit to learn more about the services Agarwal provides to the hedge fund investor community.


Chapter 1 Recent Hedge Fund Scandals.

Palm Beach, Florida.

KL Financial, March 2005.

Amaranth Advisors, September 2006.

Bernie Madoff, December 2008.

Lesson # 1: Relationships Do Not Trump Due Diligence.

Lesson # 2: Investing in Hedge Funds: Hire Experts.

Lesson # 3: “We Did Not Know What We Were Investing In,” Is Not An Excuse.

Conclusion: So Called Experts, Fund of Funds, Have Failed.

Chapter 2 The Players.

Flow of Capital in the Hedge Fund Industry.

Chapter 3 Hedge Funds.

Incentives and the Disincentives of the Hedge Fund Fee Structure.

Education of the Future Hedge Fund Manager.

Training Grounds of the Hedge Fund Manager.

The Chart Readers.

The Quants.

The Global Macro Trader.

From a Moth to a Butterfly.

Andrew Lahde's Goodbye Letter.

Chapter 4 Hedge Fund Strategies.

Long Short Equity.

Event Driven.

Global Macro.

Fixed Income Arbitrage.

Relative Value Arbitrage.

Effect of 2008 on these Strategies and Looking Forward.

Chapter 5 Hedge Fund Service Providers & Regulators.

Building a Business.

Chapter 6 Funds of Hedge Funds.

Philosophy and Services.

Failure of Fiduciary Duties.

Statistical Bucketing by Strategy.

Due Diligence and the Analyst.

What's in a Name.

The AIMA Due Diligence Questionnaire.

Where are the Experienced Professionals?

The (Lack of) Ongoing Due Diligence.

Multi-Strategy Hedge Funds.

Chapter 7 An Expert Failure.

Uselessness of Historical Data Crunching.

Quest for Steady Returns—Systematic Destruction of Alpha.

Bucketing by Asset Class and Geography – A Flawed Concept.

Alpha versus Beta—Trader Generates Alpha, not The Strategy.

Specialized Strategies.

10% to 20% Allocation Rule.

Managing a Hedge Fund Manager.

Bookrunner Versus a Proprietary Trader.

So-Called Hedge Fund Experts.

Hedge Funds – House of Second or Third Chances?

Why Does a Losing Hedge Fund Manager Shut down His Fund?

Why Does the Industry Keep Funding a Failed Trader?


Chapter 8 Remodeling the Funds of Hedge Funds.

Traders Managing Trading Investments.

Differentiate Between Alpha and Beta Strategies.

Bucketing Based on Trader Methodology.

Appropriate Risk Template by Strategy.

Manager Stop loss and Linked Redemptions.

Not 10% Majority Every Time.

On-Going Due Diligence – It is Not Just About Returns.

Chapter 9 Correct Risk Due Diligence.

Position Concentration? So What.

Management of Stop Loss Limits – The Be-All and End-All.

Over-Leverage and Illiquidity.

Hedging – Will the Market Let You Short?

Chapter 10 Interviewing a Hedge Fund Manager.


Strategy Related Questions.

What Qualifies You to Execute This Strategy?

Work Experience.

Risk Appetite.

Thinker, Adapter, Entrepreneur?

Discipline and Character.

Chapter 11 Hedge Fund Industry’s Role in 2008 Market Crisis.

Borrowers, Bankers and Investors.

Don't Blame the Products, Blame the Users.

Failed Due Diligence on Part of Investors.

Failure of Fiduciary Responsibilities by Brokers and Lies by Borrowers.

No Hedge Fund Has Been Bailed Out.

Systemic Risk and Derivative Transactions.

Regulating Hedge Funds.

Chapter 12 The End.

Robert Allen Stanford's Ponzi Scheme.

Hedge Fund Industry Offers More Disclosure.

Similar Problems with the Pension Funds, Endowments, SWFs.