Insights
Our Process

Our Process

Our process is rigorous, designed to uncover potential sources of operational risk. We rely on the experience of our professionals to spot problem areas and to tailor their services to the specific nature of each individual engagement.



We approach due diligence on alternative investment organizations with the view that no manager or fund deserves your investment capital until both have undergone a strict review. Our job is to investigate every area of potential operational risk as a skeptic, unsatisfied until all of our questions are answered.


Our process is focused primarily on the following areas:


Personnel.
  The key employees of a hedge fund, private equity fund, or other alternative investment vehicle do more than make investment decisions. They create the culture that will drive the fund’s ultimate success or failure. Expect us to undertake an in-depth review of each key individual with a focus on past conduct including, educational and employment history, professional affiliations, judgment and lien filings, bankruptcy filings, and civil and criminal history.

Structure.
  Hedge funds and other alternative investment vehicles often involve a number of different entities, all of which must be run in accordance with the laws of the jurisdiction in which they are domiciled. The entities within a fund may be required to obtain licenses or registrations and may become the subject of civil or criminal actions. During our review, we closely examine the current status and past history of all involved entities to make sure that these entities have been and will continue to be run in a compliant fashion. We can also ensure that fund investors will not be subject to liability for the actions of the fund or the fund’s management.

Service Partners.
  Managing an alternative investment fund requires the support of dedicated service partners. The most important of these are administrators, prime brokers, accountants, and auditors. As part of our due diligence services, we will verify a fund’s partner relationships and discover exactly what type of data sharing an administrator has, for example. We will verify that a fund’s service partners are known, reputable, financially stable, and experienced.

Terms and Governance.
  An investor’s relationship with a hedge fund or other alternative investment vehicle will be governed by the key fund documents. These include the private placement memorandum, limited partnership agreement or operating agreement, investment management agreement, and subscription agreement. These documents contain important provisions relating to liquidity terms, fee structures, transparency and disclosure, treatment of expenses, and more. During our review process, our professionals scrutinize these key fund documents. In addition to summarizing the key terms in an easily readable and understandable format, we will flag any provisions that are out of the ordinary. We are in a unique position to offer this review because of the extensive experience of our relationship professionals.

Compliance.
  Although alternative investment funds are more lightly regulated than mutual funds and other registered investment vehicles, it is still incumbent upon the management of a private fund to take their compliance responsibilities seriously. We undertake a review of a fund’s current state of compliance and assess how the fund plans to remain compliant in the future.

Risk Management.
  Effective risk management is critical to the longevity of an alternative investment fund. Beyond managing market exposure, effective risk management involves managing counterparty, liquidity, and operational risks. Investors should insist that fund managers stick to the rules they set out in the fund’s documentation and adopt a comprehensive plan to mitigate risks of all kinds. Our comprehensive due diligence review process includes as assessment of a fund’s overall risk management plan.


Please contact us to learn more about our process and to find out how we can help you make informed investments.
 
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