Richard Hermann

Over 30 years of alternative investment experience, with a track record of identifying overlooked opportunities.

In investment opportunities, in operational risk, in market and strategy risk, and in creative solutions for software and operations.

40%
2025–26Net return in twelve months on a hedge fund I recommended, with nearly zero market and sector exposure.1
1/100th
CurrentThe cost of LLM extraction, from a patent-pending method for parsing alternative investment statements, with a material improvement over LLM accuracy and speed.2
85%
CurrentRisk management applied to operational error reduction: 85% fewer errors in a QC testing process, and in another operation, error reduction that saved $4 million per year.2
Investments
Hedge funds, real estate, credit
Software
A deterministic improvement on LLM approaches, risk management software, text-based risk management
Solutions
The alternatives industry’s first back-office audit; the first convertible bond monitoring from prime broker reports; error reduction in biopharma, lowering manufacturing errors by $4 million per year at one company; the industry’s first automated investment-to-investor reporting

For more than thirty years I have worked across every part of an alternative investment business: risk management, manager due diligence, legal, compliance, operations, fund formation, and capital raising. Along the way I launched onshore and offshore hedge funds and raised more than $500 million for early-stage managers.

Seeing what others miss has meant moving a family office out of credit risk in 2007 and recommending investments that outperformed the market by approximately 60 percentage points. It has meant recommending, in August 2025, a highly diversified hedge fund with nearly zero market exposure that went on to return 40%. It has meant developing a technology that parses alternative investment statements at one-hundredth the cost of large language models.

I am also a full-stack developer who sold my first software before I could drive. When the tool an opportunity needed didn’t exist, I built it, and several were firsts in the industry.

Sometimes it is software nobody has written yet. Sometimes it is a solution never envisioned. Sometimes it is the risk that was never recognized.

Selected results

PeriodResultBasis
2025–2640% net return1A diversified equity hedge fund I recommended in August 2025, over the twelve months that followed, with nearly zero market and sector exposure.
Current1/100th the cost of LLM extraction2A patent-pending method for parsing semi-structured alternative investment statements, using non-text vectors for document alignment. In production in AltsByClick.
Current85% fewer errors in QC testing; manufacturing errors lowered by $4 million per year2Operator guidance software at two biopharma companies. The error reduction was measured in QC testing at one; the $4 million is the yearly cost of manufacturing errors removed at the other.
2007–0960 points ahead of the S&P 5001Six hedge fund investments I recommended to a family office, moving it away from credit risk before the financial crisis. More than 20% net over 18 months while the index fell roughly 40%.
2007Capital preserved in fullRecommended that a family office redeem from a Bear Stearns structured credit fund. The fund later collapsed into bankruptcy.
  1. Approximate, and net of fees. These are results of investments I recommended. Past results do not predict future results.
  2. Approximate.

Record

The pattern repeats: see the opportunity or the risk that others have missed, then act on it.

  • A 40% year with nearly zero market exposure

    2025 to 2026

    A diversified equity hedge fund I recommended in August 2025 has returned approximately 40% net in the twelve months since. It runs with nearly zero market exposure and nearly zero sector exposure, so the return owes nothing to a rising market.

  • 60% outperformance in the great financial crisis

    2007 to 2009

    In 2007 I urged a family office to diversify away from credit risk and recommended six hedge fund investments. They returned more than 20% net over the next 18 months, while the S&P 500 fell roughly 40%.

    Eighteen months from 2007

    Six hedge fund investments, net of feesover +20%

    S&P 500, same 18 monthsabout −40%

  • The first back-office audit of hedge funds

    Collins Associates, 1990s

    When investors judged hedge funds almost entirely on returns, I created a structured audit of a manager’s operations, service providers, technology, and internal controls, and trained a team to apply it to every manager. Operational due diligence has since become standard practice across the industry.

  • The first software to read a prime broker’s read-only reports

    Collins Associates, 1990s

    Prime brokers exposed convertible bond arbitrage positions only as read-only mainframe reports. I wrote the software that parsed them, which gave an investor independent, position-level risk monitoring of its convertible arbitrage managers for the first time, and then used the broker’s own analytics to identify the hedge behind each position.

  • Launched onshore and offshore hedge funds, and wrote the software that ran them

    Fuller & Thaler Asset Management, 1999 to 2003

    As partner and director of operations at a $2 billion manager, I handled fund structuring, contracts, regulatory setup, compliance, and operating infrastructure for new onshore and offshore funds. I also wrote the partnership accounting software that tracked general-partner allocations and investor performance, and the reporting system that cut the monthly client cycle from two weeks to under an hour.

  • Three patents pending, with the code written by the inventor

    Portside Group, 2003 to present

    I design the method, file the patent, and write the production system myself: more than 10,000 lines of Python behind live deployments in financial services and biopharma, with full-stack delivery on AWS in React, TypeScript, and infrastructure as code. In biopharma QC testing the result was more than 85% fewer errors, and at a separate biopharma, lowering manufacturing errors by $4 million per year.

  • Kept a family office out of a fraud

    Portside Group

    Independent due diligence led me to recommend against a manager a family office was preparing to hire. The manager was later shown to be fraudulent.

  • Out of a Bear Stearns structured credit fund before it collapsed

    Portside Group, ahead of the fund’s 2007 collapse

    I recommended that a family office redeem its investment in a Bear Stearns structured credit fund. The fund went on to collapse into bankruptcy. Because the family office had already redeemed, it kept its entire investment.

AI research

My research is a methodology to reduce AI errors, for work where an error is not acceptable. It is the same in every project. Confine the model to narrow tasks whose output can be checked, surround it with deterministic validation, and measure the errors before and after. Fewer AI errors is the goal. Condensed processing time is the side benefit.

  1. Deterministic alternatives to LLM extraction for semi-structured financial documents
  2. Measuring and documenting where AI output can be trusted
  3. Verifiable, governed context for LLM applications
  4. Operator feedback to reduce process errors in regulated environments

Deterministic alignment in place of LLM extraction

In production as AltsByClick, formerly DocEdge AI

Question
Capital account statements, capital calls, distributions, and valuations arrive as PDFs in whatever layout each administrator prefers. LLMs misread them in ways that are hard to detect. Can they be parsed without trusting an LLM to read them correctly?
Method

The patent-pending approach profiles every item on the page and uses Shannon entropy to rank which features actually tell one field from another. It identifies the landmarks, the labels that stay put from one statement to the next, then globally aligns each new statement to the last one from the same source, so a value is found by where it sits relative to those landmarks.

The LLM is confined to four narrowly scoped, checkable roles, such as naming a field the first time it appears.

Result
Accuracy does not rest on the model. Every match is validated in both directions, and reconciliation checks flag any figure that is inconsistent or unsupported. It is live with a family office, consolidating a multi-custodian portfolio that is mostly alternatives into one view, and it feeds a monitoring tool that computes beta, volatility, drawdown, and related risk analytics.
Side benefit
No templates and no manual entry, at about one-hundredth the cost of extracting the same documents with an LLM.

Measuring where AI output in finance can be trusted

Question
Where is AI-generated financial output accurate, where isn’t it, and how do you document the difference?
Method
A taxonomy of how LLMs fail on capital account statements; hallucination detection through bi-directional and cross-source validation; and rules for scoping each model call so cost and capability stay in balance.
Result
A working evaluation method that decides which tasks a model is allowed to perform, and which it is not.

Verifiable context for LLMs

Question
Many LLM errors begin with context that is missing, stale, or unverified. Can context be governed the way data is?
Method
A federated architecture that versions, verifies, and dynamically assembles governed context for LLM applications, so that provenance and verification are infrastructure rather than afterthoughts. It grew out of exposing the extraction pipeline as governed tools for agentic workflows through a Model Context Protocol server.
Result
A patent-pending registry design, listed under Patents below.

Operational process errors in regulated environments, reduced through operator feedback

Question
This is risk management applied to operational processes in a regulated environment, here biopharma. Operator error is operational risk, the same kind I audited in hedge fund back offices. Can the methodology that keeps an AI on a checkable path do the same for an operator, preventing the error as the work is done rather than finding it afterward?
Method
The creative, thoughtful solution others had overlooked: give operators feedback in real time, and score each run, sub-task by sub-task, on how faithfully it follows the perfect path. Patent pending.
Result
85% fewer errors in QC testing, measured in live trials at a San Diego contract manufacturer across eight production runs of a 42-step potency procedure, and, at a separate biopharma, manufacturing errors lowered by $4 million per year.
Side benefit
Condensed processing time.

Writing

Investors are systematically overpaying on alternative investment concentrated bets

AI investments could be one of the worst instances. A flat 20% carry is worth nearly twice as much on a concentrated bet versus a diversified fund.

Working paper, first drafted December 2010, revised July 2026

An incentive fee is a call option, so it is worth more when the underlying is more volatile. The paper draws out the consequence that gets less attention: a single-name position is far more volatile than the diversified fund its terms are borrowed from, so the same twenty percent is worth close to twice as much on the isolated bet. I call that wedge the concentration premium. At the illustrated volatilities the position must out-earn the fund by roughly eighty basis points a year just to pay for its own fee structure, before any compensation for undiversified risk.

The paper argues the premium survives because both sides of the table sincerely believe the same wrong number, and proposes fee terms that hold up anyway: carry scaled to position volatility, cumulative measurement across investments, clawbacks, and high-water marks.

Richard Hermann, “Incentive Fees, Alignment of Interests, and Rational Decision-Making in the Context of Special Opportunity Investments.” 13 pages.

Read the paper (PDF, 13 pages).

  • Point/Counterpoint: Eating One’s Own Cooking MAR Strategies, no. 13, July 1999, p. 10
  • Conflicts of Interest Regarding Hedge Funds Private Asset Management, April 5, 1999, p. 10
  • Letter from America: Risk Management. Hedge Fund Community Embraces Mathematical Approaches but Neglects Operational Risk AIMA Newsletter, September 1998, pp. 26–27
  • Portfolio Ponder: Why Hedge Funds Aren’t Always a Win-Win Interview by Sharon Frederick, Comstock’s Magazine, February 2009

Patents

Inventor on three U.S. patent applications, all patent pending.

  • Adaptive Document Content Extraction via Entropy-Guided Global Alignment US Patent Application No. 19/328,817 (Pub. US 2026/0080704 A1, Mar. 19 2026), pending. Shannon-entropy feature profiling, landmark identification, and global alignment with bi-directional validation. The core mechanism behind AltsByClick, with a material improvement over LLM accuracy and speed. Read the published application
  • Binding Verifiable Context from Authoritative Sources to Digital Artifacts for Semantic Integrity and Federated Governance U.S. patent application, patent pending Automated, verified context assembly for LLMs. Each piece of context is bound to its authoritative source, so that before it is used, its origin can be authenticated, the user’s right to it can be checked, and the contractual terms of its use are carried with it.
  • System and Method for Systematic Human Mastery Development, Training, Assessment, Fidelity Scoring, and Allocation via Multivariate Perfect-Path Feedback and Sub-Task Alignment U.S. patent application, patent pending Trains and assesses people on complex procedures by scoring, sub-task by sub-task, how faithfully each run follows the perfect path. The scores feed back to operators automatically, so every run is corrected against perfect execution and each repetition moves closer to it.

Career

2003 – present
Portside Group, San Diego. Partner: alternative investments, risk management, and AI development.
1999 – 2003
Fuller & Thaler Asset Management, San Mateo. Partner and Director of Operations at the $2 billion behavioral finance manager where Nobel laureate Richard Thaler is a partner.
1993 – 1999
Collins Associates, Newport Beach. Hedge fund analyst, then Risk Manager, at a $1.7 billion institutional fund-of-funds.
Education
BA, Mathematics, University of California, Riverside. FINRA Series 7, 24, and 63. Co-founder of Bay Area Hedge Fund Professionals.

Roles, responsibilities, and the complete record are in the CV.

Speaking

Twenty-three conference talks between 1998 and 2012, on operational due diligence, risk management, and manager selection, from New York and Chicago to Bermuda and Hong Kong.

  • What a Back Office Says About a ManagerMAR Mid-Year Conference on Alternative Investment Strategies, Lake Tahoe, 1999
  • The Overlap Between Hedge Funds and Venture CapitalKeynote, Australian Consulate-General, San Francisco, 1999
  • Successfully Managing Risk in Alternative InvestmentsAIC Global Hedge Funds Congress, Hong Kong, 1999
  • Behavioral Mistakes Investors Should AvoidAmerican Association of Individual Investors, Silicon Valley Chapter, 2000
  • Risk Reporting to InvestorsManaged Funds Association Forum, Chicago, 2002
  • Identifying Hedge Fund Manager Alpha and BetaAlternative Asset Summit, Las Vegas, 2008

All twenty-three are listed in the CV.