For Hedge Fund Investors

Services for Hedge Fund Allocators

Atrato Advisors works with direct allocators to hedge funds as an independent and objective provider of research, risk management, and portfolio advisory services. As a consultant, we act in a fiduciary capacity for our clients, with our interests placed directly in line with those we advise.

For entities that have an existing portfolio of investments or those that seek to deploy meaningful capital to hedge fund managers, Atrato can assume a comprehensive portfolio-level advisory role to investors wishing to outsource this function. For such mandates, we design and execute a client-specific fund research and asset allocation initiative designed to achieve clearly-defined investment objectives. We follow a rigorous manager due diligence and a tireless monitoring protocol as the foundation for a long-term subadvisory relationship.

Oftentimes, direct allocators to hedge funds seek to build, develop, and internalize their own research team and process as part of initiatives to improve and grow their asset management activities. Atrato Advisors can also act as a consultant for such clients as they move forward in building their own portfolio management capabilities. We work with our clients to install a structured, efficient, and return-driven research process. We help them build their team and portfolio management capabilities based on existing resources and strategic budget, and assist with the development of product positioning, marketing strategy, and competitive analysis.

Atrato’s Portfolio Advisory Framework

In taking on an advisory role with our clients, before we even begin our research, we spend a significant amount of time isolating the specific investment goals of the investment program. At the core of this analysis is a comprehensive understanding of our client’s:

Decision-making process
Investable universe and security restrictions
Liquidity requirements and standards
Diversification guidelines and concentration limits
Investment committee responsibilities
Investment manager reporting and communication requirements
Forward-looking investment guidelines and limitations
Acceptable performance and volatility measures

After we gain a strong handle on the client-specific characteristics of the advisory mandate, we then apply our manager research protocol. This process includes:

MANAGER SOURCING
The hedge fund research process begins with the identification of investment managers that are potentially a good fit with the needs of our broad client base. As a general rule, Atrato seeks out fund managers that have highly relevant experience to the strategies in which they trade, a perceived sustainable investment edge, a viable and stable overall business, and a demonstrable and successful track record. We will tend to have a bias toward managers who have established organizations and have experienced various market cycles, but for those mandates that require it, there will be elements to our manager sourcing process designed to capture the benefits of some newer, emerging managers. However, we will always avoid start-up organizations that don’t have adequate infrastructure, and as a result, put undue business risk on our clients.

QUANTITATIVE ANALYSIS AND SCREENING

Regardless of where hedge fund investment ideas originate from, the most important piece of information we can use to determine which funds to devote our due diligence energy is available performance information. With the exception of those hedge funds that are started by investment managers with no available previous track record, it is generally possible to find performance either on the existing fund or previous portfolios run by the investment manager. In looking at fund performance, we look at a variety of performance and quantifiable risk-related variables.

QUALITATIVE DUE DILIGENCE

Once we have identified possible candidates for our client’s portfolios, either through quantitative screening or through other sourcing means, we then begin a comprehensive qualitative review of every aspect of the fund. The qualitative due diligence process is designed to be systematic, so as to maintain organization over the collection of what is often a large amount of material. A second reason for a highly systematic approach is to maximize the efforts of Atrato’s professionals, helping focus on high-quality managers and quickly identifying instances where a manager is unsatisfactory for client portfolios. Our qualitative work covers a complete analysis of fund managers’ documentation, organizational structure, investment strategy and process, and risk management policies.

OPERATIONAL EVALUATION

Of great importance, but too often overlooked, are a manager’s business operations and infrastructure. Atrato spends a considerable amount of time evaluating the day-to-day administration, back-office and client service functions of targeted hedge funds. These functions can have a dramatic impact on the ability of a manager to implement their investment strategy. In addition, firms must have adequate control over day-to-day operations such as expenses, revenues, systems and bookkeeping. It is generally believed that the many hedge fund failures and frauds can be avoided through a comprehensive review on non-investment related factors. As such, the completion of this phase of the research is crucial to protect Atrato’s clients.

ONGOING MANAGER MONITORING

On an ongoing basis, Atrato is constantly generating new research, whether it is for managers already added included in client portfolios, or those funds that we are still tracking for consideration. Clearly, our greatest concern is for those managers in which our clients invest or for those that are imminently being considered for investment.

ASSET ALLOCATION PROCESS

Aside from manger research and evaluation responsibilities, Atrato will also spend a great deal of time helping clients in the construction of the optimal asset allocation of the managers selected for investment. To this end, each portfolio created by Atrato will have clearly defined investment objectives, developed in conjunction with the client. Optimization models will be run to test a variety of factors, including maximizing return, providing adequate portfolio diversification, management of overall portfolio volatility, and limiting drawdown risk, to name a few. To this, Atrato will add its own top-down asset allocation views to the portfolio construction process.