Fund of Funds

CMRA has consulted to many fund of funds on issues ranging from best practice to manager selection to portfolio construction to risk branding to effective due diligence on underlying hedge funds.

Ms. Rahl is the author of Hedge Fund Transparency: Unraveling the Complex and Controversial Debate published in March 2003 by Risk Books and the editor of Risk Budgeting a New Approach to Investing published in November 2000 by Risk Books. Her articles have appeared in a wide range of publications.

Selected Assignments - Fund of Funds

• Drafted and reviewed risk management policies and practices for numerous fund of funds
• Advised pension fund in allocation to alternative investments
• Provided M&A/due diligence support on a fund of funds acquisition
• Developed an innovative guarantee structure for a fund of funds
• Benchmarked hedge fund transparency practices and needs of hedge funds, funds of funds and investors
• Selected managers for a fund of funds and conducted due diligence
• Constructed a portfolio for a fund of funds
• Conducted due diligence on underlying hedge funds for several fund of funds and trained staff on effective due diligence
• Reviewed risk reporting practices of several fund of funds
• Commissioned by the prestigious Alternative Investment Management Association (AIMA) to prepare a research report on fund of funds vs. individual hedge fund investing
• Conducted a Fund of Funds Best Practice review for The Alternative Investment Management Association (AIMA)
• Co-chaired the IAFE’s Investor Risk Committees Best Practices group
• Conducted a multi-client study on buy-side risk management

Selected CMRA in the Press re: Fund of Funds

Opinions Diverge on Who Calls Valuation Shots When Liquidity is Scarce
Martin de Sa'Pinto, Senior Financial Correspondent

MONTE CARLO, Monaco - The liquidity crunch brought home to many investors, portfolio managers, service providers and prime brokers how sharply valuations can diverge when a portfolio becomes unexpectedly illiquid. This was particularly true for highly leveraged portfolios that, as the result of not-always-sharp fluctuations in the prices of securities, found themselves facing margin calls and forced to unwind positions rapidly.

The complexity of the security in question is clearly an issue, and when there is a lack of consensus on valuation methods, different constituencies will often make a strong case for completely distinct methods that can produce widely diverging valuations.

This was the basis for a panel discussion at the Global Alternative Investment Management conference in Monaco on June 19 was moderated by Henny Sender, international financial correspondent at the Financial Times.

"Valuation and transparency are among the hottest topics facing hedge funds and investors today," said Ms. Sender in her introduction. "How quickly can valuations change? If you don't have a good sense of valuation you cannot manage the risk of your positions."

In such circumstances, "I was a diehard advocate for mark-to-market, and I still believe it's the lesser of evils, but there are times when model-based pricing might make sense," said Ms. Rahl. This would of course imply that the model-based methodology was favored over mark-to-market because either market prices were stale or unavailable, or the relationship between the underlying and the proxy was weak. "The option of using such a valuation methodology would require strict checks and balances within a fund," she said.

"Marks on the collateral don't necessarily represent the price at which a trade can be unwound," said Ms. Rahl. "In some situations we have seen the exact same trades with two different counterparties being unwound at vastly different prices."

Ms. Rahl said relevant documentation, including research reports, broker quotes and screen shots, should be printed out and kept on file so that it is at least available in the case of a dispute.
(July 2008)

Levered Bear Funds: A Peek into the Black Box
By Chidem Kurdas

"People forget that even when there's careful mark-to-market pricing, portfolio valuation does not necessarily reflect the actual price you'll get at execution," said Leslie Rahl, president of Capital Market Risk Advisors in New York. "There can be a huge difference between honest mark-to-market price and execution price."
(June 26, 2007)

IRC Surveys Industry on Transparency and Valuation Practices
By Susan L. Barreto, Senior Reporter

Members of the International Association of Financial Engineers’ Investor Risk Committee are conducting surveys in preparation for a January meeting with regulators, the results of which will be discussed at its upcoming meeting.

At the meeting, officials plan to discuss the results of the survey and the first draft of the reporting requirements for hedge funds as divided up by strategy, said Leslie Rahl, who is the U.S. chair of the IRC.
(November 25, 2002)

AIMA Releases Fund of Funds Guidebook
by Susan L. Barreto

The Alternative Investment Management Association Ltd. has released the results of the research on hedge fund of funds it commissioned in 2001, complete with commentary from practitioners.

A 96-page book, "A Guide to Fund of Hedge Funds Management and Investment," covers a broad range of topics including risk management, transparency, hedge fund selection and benchmarking, liquidity, fees and due diligence.

Capital Market Risk Advisors, New York conducted the research, parts of which have been released throughout the year. CMRA coordinated and co-edited the guide that includes three comprehensive surveys of institutional investors, hedge funds and hedge funds of funds completed in the last year.
(October 21, 2002

Preliminary findings from a study of funds of funds by Capital Market Risk Advisors (CMRA) in conjunction with the Alternative Investment Management Association show that institutional investors are still nervous about the lack of transparency and the high risk involved in investing. The study's early findings also show that fund managers and fund of fund managers are hesitant to embrace the idea of best practices or reporting standards. The CMRA study is scheduled for completion and release in August of 2002.

"There is a tug of war going on," said Leslie Rahl, president of CMRA, who shared these preliminary results during a panel on transparency and disclosure at the 9th Annual Hedge Fund Forum held in New York this week. Managers in the alternative investing world are typically anti-bureaucracy and anti-authority, she added. And investors are inclined to demand adherence by managers to "best practices," a full understanding of risk in each fund, and funds with stable infrastructure and investment processes that are not reliant on a single manager.
(June 6, 2002)