October 15, 2014
Corgentum Spotlights SEC's Focus on Fund Expenses With FT's FundFire
Expenses continue to be an area of focus among hedge fund investors. A recent post on the Corgentum blog commented on the increased media attention paid to investors questions about the allocation of hedge fund expenses for items such as salaries and private jets. The SEC has also taken notice of potential manipulation of hedge fund expenses to the disadvantage of investors. Corgentum Consulting Managing Partner Jason Scharfman recently discussed the SEC's increased activity in this area with FundFire, a service of the Financial Times.
In an article titled SEC Ramps Up Expenses Enforcement Action , which was released today, Mr. Scharfman addresses where the SEC has focused their efforts. " It's coming more to the forefront on the enforcement side... I expect you'll see a lot more action [in this area] ," Scharfman said.
In the article Mr. Scharfman also comments on the benefits of performing rigorous initial operational due diligence (ODD) reviews to build a base case for the ways in which funds will approach the allocation of expenses. Additionally, his comments address the advantages of thorough ongoing due diligence monitoring and the need to utilize a multidisciplinary approach to ODD in order to keep up pace with the evolving market landscape in this area.
The full article can be read on the FundFire website (subscription required).
October 6, 2014
New Hedge Fund Governance Book Now Available For Pre-Order
Corgentum Consulting announced today that pre-orders are now open for Managing Partner Jason Scharfman's new book on the subject of hedge fund governance.
Hedge Fund Governance: Evaluating Oversight, Independence, and Conflicts provides an overview of the techniques investors can employ to analyze and better manage governance in hedge funds. The book also proposes that investors should go beyond traditional conventions of limiting their primary governance analysis to only the Board of Directors and standard governance, risk, compliance (GRC) frameworks.
Hedge Fund Governance argues that investors should expand their governance analysis to include not only offshore fund boards but the internal governance efforts of hedge funds and their service providers as well. Key topics covered by the book include:
- Discussing the link between hedge fund operational due diligence and fund governance
- Overview of common hedge fund governance frameworks including the role of internal committees and advisory boards
- Analysis of the governance roles played by hedge fund service providers including auditors, prime brokers and administrators
- Understanding the influence of governance on hedge fund valuations and liquidations
- An outline of the influence of global financial regulations on hedge fund governance
- Analysis of case studies in hedge fund governance
- Considerations for analyzing Boards of Directors of offshore funds
In advance of the distribution of the book, Mr. Scharfman has written a blog post for Amazon.com's Money & Markets section entitled, " If a Hedge Fund is Profitable, Why Should Investors Care About It's Governance? " which can be read via direct link here.
September 17, 2014
Corgentum Survey Finds Investors Embrace Combining ODD and IDD, Yet Cut Corners During Background Checks
What do you think most investors would say if you asked them if they thought background investigations on hedge fund managers were important? Most people's gut reaction is that particularly in light of what seems to be a continuing series of hedge fund frauds, that of course such checks are important. What about if you then asked them if they thought it was their responsibility, or someone else's, to perform these checks? Do you think there would be a consensus in responses? What about how deep such background checks, sometimes called investigative due diligence ("IDD"), should go? Furthermore what about combining the IDD process with other parts of the overall due diligence process such as operational due diligence ("ODD")?
In an attempt to answer these questions Corgentum Consulting today announced the results of a survey focused on analyzing investors attitudes towards hedge funds background investigations. Key survey findings include:
- 37% of those surveyed stated that they do not conduct any sort of detailed background investigations on fund manager
- 86% of the investors surveyed felt that there was is more they should be doing when it comes to background investigations particularly in the area of criminal investigations, litigation searches and tax liens.
- 84% of those surveyed outsourced the background investigation process in some way to third-parties
- 78% of those surveyed stated that they felt background checks have become commoditized
"Investors are increasingly recognizing the benefits of combining the background investigation and operational due diligence process under a model pioneered by Corgentum. With integrated reviews, clients benefit from more comprehensive deep dive due diligence reviews and subsequently can make more informed investment decisions," said Jason Scharfman, Managing Partner of Corgentum Consulting.
To learn more about the results you can read Corgentum's press release about the survey.
The survey was conducted as part of the Corgentum's 2014 webinar series. Respondents represent a wide variety of operational due diligence analysts and hedge fund investors, ranging from fund of funds and family offices, to institutional hedge fund investors including pensions, endowments, foundations and insurance companies. Signup to learn more about upcoming webinars at our contact page.
August 19, 2014
Corgentum Releases Newest Edition of Email Newsletter, Due Diligence News
Corgentum Consulting today released the latest edition of its email newsletter Due Diligence News. This newsletter provides a summary of recent news and events related to operational due diligence on hedge funds, private equity and traditional funds. The newsletter also covers industry commentary and trends as well as the latest update on what's going on at Corgentum.Headlines covered in the most recent edition include:
- Ex-MIT professor and son plead guilty in hedge fund scam
- Hedge fund founder Sam Israel of Bayou fame loses health bid to leave prison
- Madoff trustee cannot void Merkin, Fairfield settlements
If you're not already receiving Due Diligence News , you can signup today for this complimentary newsletter via our contact page. Signup today!
August 14, 2014
New Corgentum Webinar Announced - Hedge Fund Background Investigation Trends and Techniques - Signup Today!
The details of the next session in the Corgentum Consulting 2014 webinar have been announced!
The webinar Hedge Fund Background Investigations - Investigative Due Diligence on Techniques and Trends will focus on hedge fund background investigation techniques and trends. It will take place on Wednesday, September 10th beginning at 10:30am EDT.
Topics discussed will include:
- Current trends in investor background investigation approaches
- The benefits of combining the investigative due diligence and operational due diligence processes
- Review of investor and ODD analysts survey data on background investigation trends
- Recent increased investor challenges with utilizing third-party pure play background investigation firms
- Investigative techniques for investors to coordinate in-house background investigations
To announce the details of the next webinar, Corgentum has issued a press release which you may want to read for more information on the webinar.
July 17, 2014
Join Corgentum at the Family Office & Private Wealth Management Forum
Underlying operational risk considerations in fund managers continue to be an area of increasing focus among investors including family offices. Corgentum's previous research has highlighted that family offices in particular are increasingly focusing their operational due diligence efforts.
To comment on the trend of increased integration of fund manager operational risk considerations into the overall risk management and asset allocation processes, Corgentum Consulting's Jason Scharfman will moderate a panel at the upcoming Family Office & Private Wealth Management Forum. The panel, which is titled Risk measurement to risk management: Things to consider in your asset allocation practices , will take place at 5:30pm on Monday July 21.The entire conference will take place on July 21 - 23 at the Hyatt Regency Newport in Newport Rhode Islands. Topics anticipated to be discussed during the panel, include:
- Understanding the role operational due diligence plays in risk management and asset allocation process for hedge funds, private equity and traditional funds
- Recent regulatory trends in monitoring risk management
- Measuring fund manager operational risk exposures
- Working with consultants to assist in your due diligence and risk management process
- Counterparty risk reviews as part of the asset allocation process
To learn more about the conference please visit the conference webpage. Additionally, to learn more about upcoming conferences we will be attending and our operational due diligence services please contact us today.
We look forward to seeing you at the conference!
June 13, 2014
Join Corgentum Next Week to Discuss Private Equity Operational Due Diligence at InvestorOps in NYC
Institutional investors continue to focus on the importance of conducting thorough operational due diligence reviews of private equity investments. Indeed regulators such as the US SEC have recently increased their scrutiny of private equity fund operations including with regards to valuations, fees and overall transparency between GPs and LPs. Of course, just like the hedge fund industry, private equity can also not escape the growing operational requirements of compliance in the new Dodd-Frank and AIFMD world.
To learn more about trends in private equity operational due diligence we invite you to join Corgentum at the 3rd Annual InvestorOps conference at the Union League Club in New York City. The conference begins on Monday June 16. Corgentum Consulting Managing Partner, and author of Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation and Documentation , Jason Scharfman will be a speaker on the panel entitled Private Equity Operational Due Diligence Evaluations beginning at 7:45am on the second day of the conference (June 17th).
Topics anticipated to be discussed by Mr. Scharfman include:
- Similarities between hedge fund operational due diligence and private equity operational due diligence
- Techniques for investors to perform operational due diligence on non-US managers: Should a different standard be applied?
- Evaluating GPs compliance infrastructures: Are they just getting by or focusing on best practice compliance?
- Techniques for smaller investors to performing ongoing private equity operational due diligence, even if they are not on a fund's advisory board
To learn more about our upcoming conferences we will be attending and our operational due diligence services please fill out our contact form.
We look forward to seeing you at the conference!
April 10, 2014
Corgentum Highlights the Risks of New Swiss Collective Investment Schemes With the Journal of Securities Operations & Custody
New regulations across the globe continue to pose compliance challenges for funds and investors alike. From the perspective of investors, this is particularly true as it relates to the due diligence they perform on the regulatory compliance functions of funds.
The most recent wave of changes in Europe began in 2008 with the passage of the European Alternative Investment Fund Managers Directive (AIFMD"). Among other things, laws such as AIFMD directly influenced the way hedge funds and private equity funds based in Europe raised and managed capital. Switzerland is well established hedge fund distribution center however, it is not part of the European Union ("EU") which is subject to AIFMD. Instead, the Swiss Financial Market Supervisory Authority ("FINMA") has passed a new version of the Swiss Act of Collective Investment Schemes that will influence the ways hedge funds raise capital in Switzerland.To comment on the new Swiss regulations Corgentum Consulting Managing Partner Jason Scharfman has written an article for the most recent edition of the Journal of Securities and Custody entitled, " The Swiss Collective Investment Schemes Act: New challenges and opportunities for fund managers and investors ." In addition to providing background on the new regulations, other highlights from the article include:
- An outline of the performance distribution loophole in the Swiss Act of Collective Investment Schemes
- Techniques for investors to evaluate the potential operational risks posed to funds by the CISA
- A framework for analyzing qualified versus non-qualified investor distributions risks
To learn more about Corgentum's operational due diligence services please fill out our contact form.
March 13, 2014
Hedge Funds Review Discusses Corgentum Survey - Are Hedge Fund Directors Credibile?
The role of the board of directors of hedge fund offshore funds continues to be a hotly debated topic in the industry. Corgentum recently released survey data from its webinar series which provided insights into the opinions of investors and operational due diligence analysts regarding the relationship between hedge funds and their offshore boards many of which are based in jurisdiction such as the Cayman Islands.
To discuss the survey data and related trends surrounding hedge fund governance and the role of directors, Corgentum Consulting Managing Partners Jason Scharfman recently sat down with Hedge Funds Review magazine in an article titled, " Hedge fund directors lack credibility, says survey
Commenting on the skepticism many investors and operational due diligence professionals have towards directors Mr. Scharfman says in part, " Many investors simply view these directors as an extension of the fund itself. " The survey data however, shows that that many investors are either not researching or under researching directors. " This represents a significant missed opportunity to increase their understanding of the governance mechanisms in place at funds. Through operational due diligence, investors and operational due diligence analysts can separate the better directors from the pack, " Scharfman said.
The article also goes on to discuss interesting trends highlighted by the survey data related to different aspects of governance and boards of directors including:
- Analyzing the question of self-regulation of hedge funds boards as compared to more hands on regulation
- Balancing resource constrained operational due diligence functions with the need to more thoroughly vet directors
- Understanding the common misalignment of investor perceptions of directors duties and their actual responsibilities
To signup to be notified about future surveys and upcoming Corgentum webinars please fill out our contact form.
March 10, 2014
Corgentum to Present On Incorporating Operational Due Diligence Into Overall Risk Management At Investment Consultants Forum
There is a growing acceptance among investors that operational due diligence plays a key role in the overall risk management framework of a portfolio of fund managers. However, integrating fund manager operational risk information beyond a simple, "yes" or "no" approach can be challenging.
To comment on these challenges, Corgentum Consulting Managing Partners Jason Scharfman will be presenting at the Risk Measurement to Risk Management: Things to Consider in Your Asset Allocation Practices panel at the upcoming Investment Consultants Forum in New York City on March 12, 2014. At the panel Mr. Scharfman is also anticipated to discuss:
- Techniques for conducting a risk assessment of a fund's compliance infrastructure
- Evaluating fund governance structures including the role of the Board of Directors
- Analyzing fund and strategy specific operational risks
To learn more please visit the conference webpage. We look forward to meeting with you at the conference!
March 6, 2014
Hedge Fund Investors and Operational Due Diligence Professionals Continue to Question Director Independence and Credibility - Corgentum Webinar Survey Shows
The effectiveness of hedge fund board of directors continues to be a contentious issue among hedge funds and their investors. As part of the first installment of Corgentum's 2014 Webinar series, a survey was conducted among investors and operational due diligence analysts seeking to gauge current opinions about boards and related operational due diligence trends with regards to fund governance. It is noteworthy that this study included operational due diligence analysts as well as investors, since it is often left to the operational due diligence process to sort out whether a director is qualified and effective in their role.
While many investors are quick to criticize the role of hedge fund directors, the survey results show that they are either not researching them at all or under researching them during the due diligence process. Specifically, only 39% of the group stated that they interviewed fund directors, and only 18% performed background investigations on them. Other key survey findings include:
- 63% of respondents stated that the most important director function was to act as an watchdog on behalf of investors
- 73% of those surveyed feel directors do not serve a useful function
- 76% feel directors do not provide true independent oversight of funds
- Building on the findings of the Weavering case, 71% of investors and ODD analysts felt that directors should be held personally liable if a fund fails for operational reasons.
Additionally, approximately 31% felt the number of fund directorship positions should ideally be capped at 15 directorships as compared to 24% that thought the number of directorships should be capped at nine. These findings rebuke former industry survey data that suggested investors had a high tolerance for more board positions. Furthermore, it contradicts the reality that many investors accept, where many directors sit on different boards well in excess of these caps.
If you would like receive notifications about upcoming webinars and surveys fill out the form on our contact page.
February 25, 2014
Corgentum to Present On Private Equity Operational Risks at Investment Education Symposium
The attention paid to private equity through the operational due diligence process continues to grow in importance. Compared to a few years ago many investors now have mandatory operational due diligence program before investing in private equity funds.
To address these trends, Corgentum's Jason Scharfman will be presenting on operational due diligence trends in private equity at the 10th Annual Investment Education Symposium in New Orleans, Louisiana. The panel will take place on Thursday February 27 beginning at 2:45pm. At the panel, the topics that Mr. Scharfman plans to address are anticipated to inlcude:
- Recent trends in private equity operational due diligence
- How investors, including trustee's and family offices, can develop a private equity operational due diligence program
- How investors should evaluate the recent SEC focus on private equity
February 14, 2014
Do Cyber Attacks On Bitcoin's Pose Information Security and Operational Due Diligence Risks For Investors and Hedge Funds? Corgentum Discusses the Challenges With Reuters
At first glance many investors might not think that bitcoins and cyber attacks have much to do with operational due diligence. However all fund managers, including hedge funds and private equity funds, are information based organizations. In todays world, this include a reliance on technology to perform a number of critical processes ranging from manage their business and executing trades to booking and reconciling those trades. Part of the growing universe of securities, investors and hedge funds invest in are bitcoins. While this currently represents a niche play compared to the overall scheme of other hedge fund investments (i.e.-stocks, bonds, options etc.) such investments are currently being made.
If investors are allocating to hedge funds that have the ability to invest in bitcoins there are a number of operational due diligence questions that should be raised. Due to the digital nature of this currency, the criminal element involved is the use of bitcoins and the lack of financial regulation in this area it presents a number of unique operational due diligence challenges for investors to consider. Putting the investment merits of such bitcoin investments aside, from a risk management perspective investors should be increasingly concerned about the information security risks facing bitcoin investments.
To comment on this trend Jason Scharfman Managing Partner at Corgentum Consulting, recently sat down with Reuters to discuss these risks. In an article titled, Cyber attack on bitcoin a big warning to currency's users, Mr. Scharfman comments on the information security concerns presented by recent digital attacks against bitcoing exchanges. He also commented bitcoins liquidity and the increasing regulatory scrutiny facing bitcoins. The full article can be read on the Reuters webiste.
To learn more about how Corgentum works with investors to evaluate information technology and security risks and hedge funds send us a note via our contact page.
February 07, 2014
Corgentum Discusses the SEC's Analysis of Alternative Investment Valuation With The Wall Street Journal
Valuation continues to be an area of focus among investors and regulators alike. Specifically, the discretionary aspect of illiquid valuations of positions held by hedge funds and private equity is of increasing concern to the SEC. A recent Wall Street Journal Article, SEC Looking at How Alternative Funds Value Investments : Regulators say some unscrupulous managers inflate the value of illiquid holdings , outlined this trend of increasing valuation scrutiny.
Among the numerous examples of this enhanced illiquid valuation oversight, the article cites the recent allegations against Yorkville Advisors LLC as part of the government's Aberrational Performance Inquiry Initiative. In that case, the SEC alleged in part that the firm deviated from the fund manager's stated valuation policies. In the article, Corgentum Consulting Managing Partner Jason Scharfman also outlines some of the valuation red flags pension plans and other investors should be aware of.
" In their offering documents, funds may disclose such items as whether there are limits on the amount of the portfolio that managers themselves may price; who is on the valuation committee; whether the fund administrator has interaction with the committee; and the administrator's role and valuation approach. Investors should compare what they read with information they learn from other documents and conversations with the manager and administrator. If I know a manager is pricing 10% of a book himself, I don't want to see that jump up to 40%, " he says.
Mr. Scharfman also comments on the role of FASB valuation levels and the increasing role operational due diligence consultants such as Corgentum, play in assisting investors evaluate fund manager valuation policies and procedures.
The full article can be read on the Wall Street Journal website.
February 07, 2014
Corgentum Study Highlights Family Office Operational Due Diligence Risks With COO Connect
Family offices continue to face operational due diligence challenges compared to their institutional counterparts. At a recent Institute for Private Investors conference, Corgentum Consulting Managing Partner Jason Scharfman commented on these challenges and provided family offices and high net-worth individuals with an outline of techniques they can use to enhance their existing ODD functions. At this conference Mr. Scharfman also presented some of the highlights from Corgentum's recent family office operational due diligence survey.
The Corgentum study, Family Office Study: Taking Aim At Hedge Fund Operational Risk , found that family offices had fallen behind in the field of operational due diligence but are making improvements in their ODD programs to catch up to institutional investors. Continuing to highlight this trend, COO Connect cited the study in a recent article entitled, Family offices warned on operational due diligence shortcomings
Corgentum works with many different types of investors including family offices and high net worth individuals to help improve the quality of their operational due diligence reviews. To learn more about Corgentum's operational due diligence services for family offices please contact us today.
January 23, 2014
Corgentum Announces 2014 Webinar Series With Performing Operational Due Diligence on Hedge Fund Offshore Directors on Tuesday, February 18, 2014 at 10:30am EDT
Corgentum Consulting announced today that it will host a series of quarterly webinars throughout 2014.
The first installment in the 2014 webinar series , Performing Operational Due Diligence on Hedge Fund Offshore Directors , will feature speakers Jason Scharfman (Managing Partner, Corgentum Consulting) and John Ackerley, Director, Carne Global Financial Services (Cayman) Limited
This webinar will provide investors and operational due diligence analysts with insights into the unique challenges presented in analyzing a hedge fund's offshore board of directors. Other topics covered during the webinar will include:
- Investor’s challenges with analyzing professional directorship firms
- Analyzing director liability and multiple directorships
- Understanding the responsibilities and challenges facing offshore fund directors
To announce the webinar, Corgentum has issued a press release which can be read here.
January 21, 2014
Corgentum Releases January 2014 Edition of Operational Due Diligence Insights
Corgentum Consulting has released the January 2014 edition of its quarterly newsletter Operational Due Diligence Insights.
Artciles in this issue include:
- Regulatory Focus - Was Form PF a Failure?
- Business Continuity Corner - Does BCP/DR Functionality Breedn Complacency?
- Private Equity - Will PE Firms Be in the SEC's Crosshairs in 2014?
- Accounting Spotlight: Does the Source of Audits Really Matter?
- Service Providers - Administrator, Valuation, Validation or Verification?
To subscribe to be notified of future issues of Operational Due Diligence Insights please signup for our mailing list at our contact page.
January 6, 2014
Corgentum to Present on Operational Due Diligence Challenges Facing Family Offices at IPI Winter Forum
Family offices and ultra-high net worth ("UNHW") individual continue to face challenges when it comes to operational due diligence. Echoing this sentiment, Corgentum's previous research has shown that these groups have traditionally lagged behind other investor segments in focusing on operational due diligence, for hedge funds and private equity in particular.
This is somewhat concerning, as these groups are often one of the primary segments that can be targeted for small capital investments into potential small to mid-size frauds. The good news the research has shown, is that family offices and UNHW have in general, begun to recognize these deficiencies and refocus on operational risk.
Corgentum Consulting has partnered with the Institute For Private Investors to address these concerns more directly with this investor segment. Leading this effort, Corgentum Consulting Managing Partner Jason Scharfman will host a session entitled, Operational Due Diligence for Hedge Funds and Private Equity: Examining the Grey Areas and Securing the Same Protections as Institutional Investors at the upcoming 14th Annual IPI Winter Forum
Topics expected to be covered during the session include:
- Techniques for developing a robust family office operational due diligence program
- How family offices / UNHW can partner with specialized ODD consultants to increase scope and depth of ODD coverage
- Approaches for family offices to analyze the ODD work of fund of funds or other allocators they make work with
For more details on this IPI members only session, please visit the IPI events page.