Read an interesting book on this subject written by Jason Scharfman called Hedge Fund Operational Due Diligence: Understanding the Risks. Got it on amazon here: http://www.amazon.com/Hedge-Fund-Operational-Diligence-Understanding/dp/0470372346

Maybe someone will listen to this author and get on their due diligence!

Hedge funds are speculative investments. Period. Hopefully investors who invest in them – (hopefully) understand this fact. But money is money and when you loose some (or all) investors curse the fund-manager. And when you win investors pride themselves on their investment savvy . Point here being that negative alpha is a reality.

Conducting thorough due-diligence for these funds is a tall order, especially for an individual investor. A lot of this “due-diligence” is based on trust or because your good buddy (or family member) invested with this fund. It obviously is not enough and I agree with the author that misrepresentation has become all too common. The solution, I guess would be a combination of Fed oversight, quarterly reporting, audits, compliance and investor involvement (and more)..

Good one…to eliminate a Bill Miller, there should be a rule that value investors’ fund company cannot own 25% in an outrageously priced internet retailer (amazon.com)…that was just a bit of a red flag, huh?

2) Well-audited books
Check.

3) Having a cogent plan to continue making money.

Check. Value investing.

Hmm, this Bill Miller guy sounds interesting. I’ll blindly give him all my money and he’ll make me rich beyond my wildest dreams!