Until not too long ago, operational or non-investment-related risk was given short shift vis-à-vis its more directly bottom-line related cousins: market, credit and liquidity risk.  In the current marketplace, however, the impact of operational due diligence on the profit and loss of investments in and by hedge funds is being starkly illustrated every day, most notably in the unfolding Madoff scandal.  Hedge funds and investors in hedge funds need to understand many new issues, including counterparty risk, the impact of new accounting pronouncements and how to deal with fraudulent schemes and funds which suspend redemptions or restructure.  In his book, “Hedge Fund Operational Due Diligence: Understanding the Risks,” Jason Scharfman, a director with Graystone Research at Morgan Stanley identifies these operational risks and recommends a strong and innovative “operational” due diligence review program as the best defense against them.  Our review of Scharfman’s new book offers a thorough overview of the book and its lessons.