HEDGE FUND OF FUNDS
BY: MAHA KHAN PHILLIPS • PROFILES BY: STUART NEWMAN
LUIS XAVIER, CFA F
und of hedge funds invest in underlying
hedge fund managers, similar to what a
multi-manager would do on the long only
side of the business. Th ey cater primarily to the
Title: Senior Hedge Fund Analyst/
institutional market, and are generally considered to
Portfolio Manager
be a good stepping stone for pension funds which
Current employer: BPI
need to learn how the industry works before making
University:
direct investments, or are not large enough to do so.
Universidade Nova de Lisboa
Degrees: Bachelors in Economics;
Th ey also provide diversifi cation for those who do
Masters in Economics
not want exposure to any single strategy. Roughly
Professional qualifi cations: CFA
50% of the total hedge fund industry is comprised
of assets managed by hedge fund of fund players,
What attracted you to this career path?
and the top 25 fund of hedge funds by size control
I enjoy the vast knowledge and information we can obtain,
75% of the marketplace, according to estimates. It
and being close to the brightest fi nancial minds. When you means that large players have signifi cant muscle in
deal with money and markets your assessment of reality is this space.
constantly at risk. Bigger players also have more money to off er
hedge funds, making it easier to attract funds with
What are the major challenges you face in your position? limited capacity to their roster. Some consultants
The major challenge is to identify which are the big argue that only 5% to 10% of current hedge fund
underlying trends. Those are the major forces that will
managers are highly skilled enough to add value
impact everything else, although an unpredictable event
after fees. Th is means that for hedge fund of funds
can change everything.
who have to fi nd talent in the industry, capacity will
remain a constant issue.
Are there certain skills you would consider useful for
Hedge fund of funds charge similar fee structures
your job?
to fund managers, 1%-2% management fees and a
It’s vital to focus your attention on one subject at a time
10% performance fee, ranging up to 20%. Like
and be methodical and rigorous. Having above average
everyone in the hedge fund industry at the moment,
knowledge and information about each fi nancial subject is
their performance is really suff ering, causing
the only way to ensure you’re not carried away by other
people’s thoughts and speeches.
How do you think the role you’re in now will change
“The investor base for hedge funds
over time?
Sometimes people think that everything is going to
broadened to institutions, and will
become more complex and demanding. I think that if you
focus on simple details and concentrate on simple
strategies, you will do well. Complexity has created
soon broaden to retail investors.
enormous problems in the fi nancial markets.
Fund of funds will be the primary
Do you have advice for someone intending to pursue the
same career path?
Be a sceptic, learn by yourself and always think about channel for hedge fund investment
‘what if’ scenarios. Throw off the effi cient market
hypothesis and compare politicians and policy makers’
statements and subsequent market action – you will learn
because it is the safe way to go”
a lot about how to trade and invest.
Omar Kodmani, CFA, Permal Investment Management
22
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