1. As of 2006, assets under management of the hedge fund industry totaled US$1.2 trillion; with this rapid growth in the number and diversity of hedge fund managers, investors must understand the importance of conducting a thorough .......... diligence assessing the overall merits of a particular manager.

2. Mike Rasmussen of Capricorn explains that previously the major focus has been on only understanding the investment strategy; however, increasing inflows of institutional capital and the growing numbers of well-publicised fraud cases has led to sophisticated investors .......... the operational risk behind their investment.

3. Regulators and investors alike are paying more attention to hedge funds, as this relatively new asset class is growing at a tremendous pace with .......... interest from the retail investor to public pension plans.

4. Therefore it is equally important to understand the investment strategy that seeks risk-adjusted returns, as it is to identify the operational risk that negatively .......... your investment.

5. With the tremendous scope of differing strategies that are currently available, investors need to understand where possible weaknesses such as weak controls, poor providers and lacking internal information may lie: each one of these factors if they are not monitored or resolved can result in a .......... on performance.

6. When making an investment decision, you should be well informed on the quality of the hedge fund manager and take .......... that sufficient attention has been given to operational as well as investment issues.

7. It is important that a hedge fund has a chief operations officer whose dedicated function is to address all operational issues of the hedge fund. the primary reason for this is that the trading manager should be responsible for producing .........., not the day-to-day running of the business.

8. It is essential to understand how a hedge fund has established the internal controls that regulate trading; hedge funds with prime brokers, for example, understand the efficiency of 'best .......... ' practice with straight through processing capabilities to limit manual interaction.

9. Additionally, there needs to be a clear .......... between those responsible for trading and trade reporting, to limit the possibility of trade discrepancies.

10. With the expanding number of hedge funds and financial opportunities available to investors, understanding the operational risk of any investment must be examined; however, .......... in mind that from a universe of 9,000 hedge funds, the top 100 account for nearly two thirds of the entire industry's US$1.2 trillion in assets.