Hedge fund investing is about capital preservation first and foremost, and secondly, superior risk adjusted absolute returns. Just as in the property market the three golden rules are “location, location, location”, so in fund management the three golden rules are “discipline, discipline, discipline”. Failure to adhere to these rules at all times invariably leads to losses.
Style drift is a serious deviation in the investment process. Overlooking risk control rules is another example.The investment process should be a proprietary tried and tested methodology which owes nothing to momentum investing or listening to street noise.
We look for independent thinkers with an individual perspective. Strong risk control inspired by capital preservation instinct should be maintained and reviewed at all times. Traders and other key personnel should be properly incentivised. We look for an experienced and efficient back-office or in its absence, best practice procedures established with third party service providers.