Hedge Fund Manager Due Diligence

Ongoing Hedge Fund Manager Due Diligence

I recently found a great article on hedge fund manager due diligence, it focused on ongoing hedge fund manager due diligence. When reviewing a hedge fund, process transparency is crucial to the method as risk transparency. Institutional investors must hold the prerequisite that their investments meet the prudent man standard. They need to understand; what a hedge fund manager’s abilities are; is there a process for measuring and assessing risk as well as reward; the manager’s strategy and allowable deviations from it; the safeguards in place to shun fraud; that the people operating the hedge fund are honest.

Some additional topics to consider are alpha generation, risk measures, risk mitigation strategies, basis of performance, warning signs, imploding scenarios. Some classic due diligence topics include, how risk is managed, recovery plans, max leverage, and risk transparency.

Ongoing due diligence and intelligent manager selection are the most crucial parts of the process. In depth knowledge of the specific strategy being used as well as awareness of how hedge fund managers “operate” are key qualities one must possess to perform true hedge fund due diligence and exam all inherent risks involved. Evaluation of how these risks are supervised by the manager is an essential part of the procedure as well.

- Gregory Schink & Richard Wilson

Read more articles like this within the Hedge Fund Due Diligence Guide.

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