We pride ourself on our extensive due diligence, which it performs on managers before it approves them for introduction to our clients or inclusion in products. While the due diligence process may vary depending on the client’s preferences, each targeted manager must undergo a procedure built around a number of critical steps.
Due diligence begins with a screening check to determine whether conducting full due diligence is warranted. This review covers the fund’s performance history, strategy and risk controls. The analysis also includes, but is not necessarily limited to: risk factors inherent in the strategy; use of leverage from borrowed monies; the use of derivatives; concentration both in number of positions and by position; liquidity; transparency; complexity of the strategy; and the extent of hedging.
The full due diligence process will also typically include:
- A detailed review of the investment model to ascertain strategy, style and probable returns. This analysis develops an understanding of the manager’s creation of alpha, perceived “edge” in the market and ability to deliver consistent investment returns.
- An in-depth analysis of the strategy and the fund’s risk controls, including actions taken at various past points of stress in both the fund’s performance and that of the overall markets.
- A field visit to the manager, including in-depth interviews of key personnel and an examination of the premises and technology available.
- An in-depth review of the fund’s business and operations. This includes interviews with the fund’s service providers, a review of its technology platforms and thorough analysis of its operational capabilities and process controls.
- Background checks of key hedge fund management members. This includes reference checks with investors, former employers and various industry professionals.
- Scrutiny of the fund’s audited financial statements with a mathematical check of the financial’s and other data to verify performance.
- A review of all documentation on the fund and its affiliates. This typically includes the latest legal documentation, marketing materials, extensive checks with various regulatory agencies, litigation history and employment and education verifications.