choosing partners in any business venture is an important task. Investments in hedge funds ultimately hinge on the people involved in managing the investments and business. The experience, education, and track record of the people involved in the hedge fund are important characteristics to be evaluated. Hedge fund managers are an eclectic group of people, with varied educational and trading backgrounds. Many successful managers have previously worked on the proprietary trading desks of investment banks, while others have been Wall Street research analysts or traditional portfolio managers, or have had careers in other industries altogether. There is no single route to success, but relevant experience is preferred. More than just investing expertise is required. Ability to manage a company is key, whether the main investor is running the business or a specialist is hired to do so. In cases where there is more than one person involved, the question arises of how well they will get along and how differences will be resolved. Organization A hedge fund's organizational structure and business plan can affect investment returns, and must be carefully analyzed prior to committing capital to the manager. Organizational distractions can disrupt the investment decision makers' ability to focus on managing the portfolio. Conversely, effective internal controls can provide important safeguards against fraudulent practices in the fund. Hedge fund management companies range in size and scope, from start-up sole proprietorships to large financial institutions that offer hedge funds as part of broad product lines. Successful managers of all organizational sizes exist, but the organization must be consistent with the needs and aspirations of the hedge fund itself. Appropriate trading infrastructure has to be in place. The manager needs to have legal counsel, and appropriate compliance structures are necessary. A typical scenario for new hedge funds is a successful portfolio manager leaving a large organization to start up his or her own fund. This may raise concerns because the manager is leaving the support and infrastructure of the larger organization. Whether the manager will be able to overcome these challenges is clearly germane to the hedge fund's success. The manager's plan for growth is an important consideration, especially in light of the long investment horizon required of many hedge funds. Does the manager have in place hiring plans consistent with asset growth? The manager's forecast of capacity and his or her plans to monitor capacity constraints at appropriate intervals can affect when the hedge fund closes. Fund size has to be evaluated in the context of the strategy, since the nature of assets and trading style will dictate the appropriate fund size. A manager trading a low-turnover strategy in large-capitalization U.S. stocks should have much larger potential capacity than one who trades emerging-market stocks with high turnover. A key consideration in hedge fund investing is the alignment of interests between the hedge fund's employees and investors. The extent to which employees are themselves investors in the fund is an important variable in the decision to invest with a hedge fund. Investors want not only key principals to be investors,