Wednesday, February 18, 2009

Questions your hedge fund manager should be able to answer

I recently came across an article at Corgentum written by Jason Scharfman, who will be presenting at Gaim Ops Cayman, and he listed ten questions ever investor should ask their hedge fund manager.

They are:
  1. Appropriate Resources – Are sufficient resources (i.e., staffing levels, budget, etc.) committed to due diligence as compared to other functions such as client service or investment management?
  2. Intensity – What exactly does your advisor’s due diligence process entail (i.e., documentation collection, on-site visits, etc.)?
  3. Documentation – How does your advisor document the due diligence process?
  4. Scope – Is separate operational due diligence performed on operational risk, or is all due diligence – investment and operational – lumped together?
  5. Qualifications – What makes the individuals performing due diligence particularly suited to vet a hedge fund’s investment and/or operational risks?
  6. Diverse Skill Sets – Is there diversity of skill sets among due diligence analysts to ensure a variety of risks are vetted, or do they all have the same general background (i.e., all former hedge fund accountants)?
  7. On-Going Monitoring – After the initial due diligence process is complete, does your advisor perform any on-going due diligence?
  8. In-house or Outsourced – Does your advisor outsource any part of the due diligence process, such as background investigations, to other firms or is all due diligence performed in-house?
  9. Service Providers – Is due diligence performed on a hedge fund’s service providers (i.e., auditors, administrators, etc.)?
  10. Previous Examples – Can your advisor cite recent examples of hedge fund managers they have ever not hired (or fired) because of items uncovered during the due diligence process?

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