One of the key elements in the opportunistic strategies team's approach to manager evaluation is our emphasis on examining the operational structures of hedge funds. Because over half of hedge fund turmoil is the direct result of deficient operational structures, we conduct extensive operational due diligence audits in addition to understanding the investment process of a manager.
Operational due diligence requires an in-depth knowledge of managers, the ability to assess their trading, accounting and reporting risks, and the willingness to bring a range of tools to bear when assessing an organization.
Our opportunistic strategies group includes individuals with not only in-depth financial understanding, but also specific expertise in trading and accounting. This combination of skills and resources helps us develop a very thorough understanding of an organization’s operational risk and allows us to bring potential issues to a client’s attention. Additionally, we are comfortable working with law firms and background check specialists where appropriate.
When we conduct an operational due diligence audit, we evaluate a number of factors and processes within a manager’s organization, including:
- Effectiveness of the processes used to source, evaluate, and manage investments
- Efficient work flow processes that assign accountability at each stage of the investment processes and facilitate smooth transitions between groups
- Design of internal controls to assure investment processes follow established policy
- Measurement of operational performance from a third party
- Procedures for creating investor reports, content, and frequency of reports
- Records management procedures to back up and maintain files plus disaster recovery plans