The Greenwich Roundtable today released a white paper that documents what can go wrong when investing in alternative investments, and what actions investors can take to avoid mistakes that result in large losses. With increased emphasis on risk management arising from the financial crisis, this white paper serves as a timely resource for investors in alternative assets.
“We were inspired to write this paper because nothing like this exists in the alternative investments industry,” said Steve McMenamin, executive director of The Greenwich Roundtable. “We wanted to define the mistakes and crystallize the lessons that investors can learn from.”
The research paper investigates how investors can avoid being victims of a fund that self-destructs. Although the press heavily focuses on sensational blow-ups, such as the Madoff case, there are many other cases to learn from. The goal of the Greenwich Roundtable paper is to help investors avoid funds that drag down the overall returns they seek from their alternative investment allocations.
“We have been watching, observing and analyzing adverse events in the industry for many years. In aviation, medicine and mountaineering, we’ve seen how objective analysis of mistakes helps people to recognize the warning signs and significantly reduce future accidents,” said Mark Silverstein, chairman of the Greenwich Roundtable Education Committee and Chief Investment Officer of Endurance Specialty Holdings Ltd. “We believe this paper provides investors with an excellent tool to defend against investment mistakes.”
The Greenwich Roundtable is a leading not-for-profit research and educational organization comprised largely of institutional investors who invest in alternatives. The purpose of the Greenwich Roundtable is to discuss and provide current and cutting-edge information on non-traditional investing.
“After reviewing over 200 cases, we chose the 22 most illustrative examples that provide the most powerful lessons,” said Rusty Olson, former director of pension investments for Eastman Kodak Company and editor of this year’s research paper. “We want investors to plainly see how they can avoid investment mistakes by understanding some of the warning signs.”
The paper is broken down into two sections. The first section is a compilation of case studies that takes a deep dive into hedge funds that have failed. Each case study details the background of each fund, what went wrong and the warning signs. The second section discusses the importance of understanding cycles in private markets, knowing when to invest and how initial due diligence and continued manager monitoring can help avoid common pitfalls.
This is the seventh in a series of white papers on Best Practices in Alternative Investing published by The Greenwich Roundtable. This new research paper reflects the thinking of a highly diverse group of contributors who have extensive investment experience. The education committee responsible for the research paper is an interdisciplinary group of limited partners.
The research paper is written for all investors, which includes individuals, endowments, foundations, pension funds, sovereign wealth funds, funds of funds, insurance companies and family office investors.
Information about obtaining copies is available at www.greenwichroundtable.org.