Research

Family Office Study: Taking Aim At Hedge Fund Operational Risk

In recent years, the amount of attention and resources expended by investors towards conducting fund manager operational due diligence reviews has significantly increased. That being said, different investor segments have embraced operational due diligence with differing degrees of enthusiasm. While the motivations for this are varied and may likely be influenced by factors such as the resources of different investor groups, certain investor groups have been slower to embrace operational due diligence as compared to others.

In general groups such as family offices were one of those groups that have been thought to be lagging behind the institutional curve. In order gauge trends among family offices in this areas, Corgentum conducted a survey of over 120 family office professionals in the U.S., Europe and Asia. This research provides an overview of this survey data, and confirms a general increase in the resources expended by family offices towards operational due diligence while also highlighting some ongoing gaps in processes currently employed.

The Forgotten Hedge Fund Master Board of Directors

Much attention is often paid during the operational due diligence process to the board of directors of a hedge fund's offshore vehicle. In master feeder structures many investors neglect to inquire about the board of directors of the master fund. This paper provides an overview of the importance of inquiring about the board of the master fund and the potential conflicts and risks this board may pose to investors in onshore and offshore investment vehicles.

Hedge Fund Due Diligence Gold? - The Olympic Connection

The team versus individual sports in the Olympic games presents a number of similarities towards investors approaches to operational due diligence. This paper provides an overview of different approaches towards operational due diligence and the differences of a bottom up versus big picture approach towards operational due diligence.

The JOBS Act Won't Affect Due Diligence - Or At Least It Shouldn't...

The JOBS Act represents new marketing and fund raising opportunities for fund managers. While there will be increased opportunities, the JOBS Act also presents a number of challenges for investors. This paper outlines some of the dangers the JOBS Acts will present for investors during due diligence.

The Importance of Highlighting Manager Strengths During Operational Due Diligence

This piece outlines the importance of recognizing a fund managers' positives rather than just the negatives. Often an operational due diligence review tends to focus on the problems in a fund instead of highlighting the things that they do well. It is important to show both the pros and cons of the fund manager's operations in order to get the most out of the operational due diligence review and paint a complete picture of a manager.

Private Equity Operational Due Diligence Trends - Navigating the Path Forward

This paper outlines the results of a Corgentum Consulting survey of approximately 150 Limited Partners focused on trends in private equity operational due diligence. This study asked survey participants a wide range of questions ranging from general due diligence approaches to specific approaches towards analyzing non-investment related risks in private equity funds. A key finding from this survey is that a representative trend of increased resources dedicated to operational due diligence in general however, hedge funds are still receiving more attention in this area as compared to private equity investors. To remedy this deficiency private equity Limited Partners indicated a willingness to allocate more resources towards operational due diligence going forward. Additionally, the survey data indicated that a key focus of private equity investors was operational due diligence efforts was centered around fraud detection.

The Benefits of Operational Due Diligence for Private Equity- Paving the Way Ahead

This research piece outlines some key considerations for Limited Partners when performing operational due diligence on private equity. Some key considerations outlined in this paper include a discussion of the benefits of performing operational due diligence reviews on private equity funds, and items which should be focused on during the private equity review including valuation and compliance risk factors. Additionally this paper outlines the importance of working with an operational due diligence consultant.

How dedicated and independent operational due diligence consultants add value

This research piece explains the importance of operational due diligence and how transparency is becoming increasingly more important between investors and fund managers.

Why Familiar Names Do Not Automatically Produce Low Risk Environments

This research piece explains why a well-known administrator is at just as much a risk as a smaller one is. Corgentum explains that just because an investor or hedge fund manager use a well-known administrator does not mean that they are at a lower risk than if they were to use a company that was smaller or under the radar. Lower operational risk cannot be equated with the size or familiarity of an administrator.

Trustee Guide to Alternative Investment Operational Due Diligence

This research piece is a guide for trustees to understand alternative investment Operational Due Diligence.This piece covers operational due diligence on alternative investments including, hedge funds, private equity firms and real estate funds.The guide equips trustees with the means to overcome operational due diligence challenges for 2012, trends in operational risk as well as the role that operational due diligence consultants play in a due diligence solution.

Corgentum – 2012 Legal and Compliance Focus

2012 has ushered in the coming of a number of important regulatory changes for fund managers. It is essential for investors conducting operational due diligence, to understand the ways in which this new regulatory landscape will effect fund manager operations. This paper, 2012 Legal and Compliance Focus, provides an overview of some of the major new legal and compliance requirements for 2012 including SEC registration, revised Form ADV filing, and the additional disclosure requirements of Form PF. By understanding the ways in which a fund manager prepared for compliance with these new guidelines, investors will be able to better determine how a fund manager will further comply with ongoing compliance requirements as well as any future regulatory changes.

The dangers of generic canned operational due diligence reports

The paper provides an introduction to the dangers of generic canned operational risk reports. Several concerns investors should have about these canned reports may include the fact that investors have different operational sensitivities, operational risk factor weights vary among managers and that information overload can dampen operational sensititivities.

Hedge Fund Operational Due Diligence - Understanding Your Hedge Fund's Approach To Prime Brokerage

This paper provides an overview of the operational risk and challenges which prime brokerage presents hedge funds. Understanding Your Hedge Fund's Approach To Prime Brokerage also discusses investor operational due diligence considerations for utilizing multiple prime brokers, the role of introducing prime brokers and bundled prime brokerage services.

Hedge Fund Operational Due Diligence Education Series - Understanding Material Nonpublic Information in the United States

This paper provides an overview of the operational risk and challenges which prime brokerage presents hedge funds. Understanding Your Hedge Fund's Approach To Prime Brokerage also discusses investor operational due diligence considerations for utilizing multiple prime brokers, the role of introducing prime brokers and bundled prime brokerage services.

Hedge Fund Audits: Scope, Materiality, Audit Opinons and Operational Risk

This paper provides an introduction to audit opinions, the concept of audit materiality and audit scope in the context of assessing the operational risk of a hedge fund. Also discussed in this paper are several commonly held misconceptions regarding the work of hedge fund auditors.

The Impact of Dodd-Frank on Hedge Fund Operational Due Diligence

An overview of the impact of Dodd-Frank legislation on hedge fund operational due diligence. The passage of the Dodd-Frank legislation presents a number of operational challenges for both hedge funds and investors. This paper provides an introduction to some key considerations for investors to consider during the operational due diligence process, as they begin to evaluate hedge funds in the new Dodd-Frank environment.

Corgentum – The Advantages of Having a Local Hedge Fund Operational Due Diligence Presence

This paper provides an overview of the benefits of Corgentum's local presence in the heart of the New York area’s hedge fund community. Corgentum’s local knowledge and expertise provides our firm with significant insights for managers based in New York, Connecticut, New Jersey and the surrounding areas. This local presence compliments our firm’s broader global hedge fund coverage.

Hedge Fund Operational Due Diligence Education Series -
Analyzing Hedge Fund Valuation Practices

This paper provides an overview of the multifaceted process by which Corgentum analyzes a hedge fund's valuation practices. This piece also outlines some key questions investors should consider when evaluating the approach a hedge fund takes towards valuation including the independence of the process, pricing inputs utilized and the role of the administrator as well as any third party valuation consultants.

Corgentum - Working With Investors To Evaluate and Monitor Operational Drag® in Hedge Funds

This piece provides an introduction to the concept of Operational Drag®, the negative effects of operational risks on the efficiency of an organization. This paper also outlines how the Corgentum hedge fund operational due diligence process goes beyond fraud detection to work with investors to analyze and monitor Operational Drag® in hedge funds in order to reduce our client’s exposure to hedge fund operational inefficiencies.

Corgentum - Independent & Unbiased Hedge Fund Operational Due Diligence

An overview of the importance of independence and objectivity in the Corgentum hedge fund operational due diligence process. This paper also outlines the benefits of Corgentum's sole focus on operational due diligence as well as the benefits of Corgentum's multidisciplinary approach.

Hedge Fund Audited Financial Statement Reviews During Operational Due Diligence

This paper provides a discussion of the importance of audited financial statement reviews as part of the broader hedge fund operational due diligence process. Additionally, this paper provides a list of key questions investors may want to consider when reviewing audited financial statements.

Hedge Fund Operational Due Diligence Questionnaire: To Use or Not To Use?

An overview of the role due diligence questionnaires ("DDQ's") and request for proposals ("RFP's") play in the hedge fund operational due diligence process. This paper also outlines some key questions and other considerations investors should bear in mind before asking a manager to complete a customized due diligence questionnaire.

Hedge Fund Operational Due Diligence: An Absolute or Floating Standard?

An overview of the pros and cons of applying absolute best practice and floating standards towards hedge fund operational due diligence. While an absolute best practice standard facilitates uniformity in comparing operational risk information, this methodology can suffer from rigidity. A floating standard can better accommodate the particularities of hedge funds operating in different regions but runs the risk of being overly flexible.

Hedge Fund Operational Due Diligence Education Series -
Information Technology Due Diligence

This paper discusses the often overlooked nature and importance of incorporating a review of a hedge fund's information technology infrastructure into the investor operational due diligence process. Specifically, the information technology topics discussed in this piece include a review of a hedge fund's hardware, software, business continuity and disaster recovery and information security.

Hedge Fund Operational Due Diligence Education Series -
Evaluating Your Hedge Fund's Administrator

This paper discusses several key questions investors can utilize to evaluate their hedge fund's administrator. Other topics addressed in this paper include the importance of understanding the nature of the administration services being provided, the need to monitor the on-going relationship between the hedge fund and the administrator and the diagnostic process concerning the role played by the administrator in the overall valuation process.

Information Overload Red Flags - When a hedge fund doesn’t know when to say when to due diligence information requests

This paper discusses the importance of understanding and diagnosing the hedge fund due diligence document distribution process as part of the overall operational risk evaluation of a hedge fund manager. Questions posed by this paper for investors to consider include: Are response requests pro-active or reactive? and How is investor information protected?

Hedge Fund Service Provider Due Diligence: A Window Into Operational Risk

This paper outlines the importance of conducting thorough due diligence on a hedge fund's service providers.

Private Equity and Real Estate Operational Due Diligence

An introduction to Corgentum’s private equity and real estate operational due diligence and operational risk service offerings.

Jack of all trades or master of none? - The benefits of multi-disciplinary operational due diligence

This paper discussed the benefits of utilizing a multi-disciplinary approach to operational due diligence and cautions against the risks associated with myopic self-limiting approaches.

Has Rigor Mortis Set In On Your Due Diligence?

This paper outlines the benefits of adding an element of flexibility to operational due diligence approaches and cautions against overly rigid operational risk methodologies. Such flexibility often sheds more light on the operational risks already uncovered during standard methodology reviews.

Ten Questions Every Investor Should Ask Their Hedge Fund Manager: Operational Risk

In the post-Madoff environment many hedge fund investors, both institutional and ultra-high net worth, are taking an increased responsibility for overseeing their own due diligence. Hedge funds should be addressing operational risk across a multitude of different operational risk factors. This paper outlines ten questions every hedge fund should be able to not only answer, but explain why they made certain operational choices which led to these answers.

Thinking outside the box - Seven innovative due diligence techniques

The nature of due diligence is changing. In this new environment, investors need to be innovative in their approach to due diligence. This paper outlines several innovate hedge fund due diligence techniques.

Preparing for the operational due diligence visit: A hedge fund's guide

As a result of the current economic environment and frauds such as the Madoff scandal, hedge fund investors have placed an increased importance on performing detailed operational due diligence reviews.This paper outlines a few key steps a hedge fund can take to ensure that they are adequately prepared for an operational due diligence review.

Analyzing Operational Due Diligence Frameworks In Fund Of Hedge Funds

This study outlines the results of the analysis of the operational due diligence frameworks in place at over 275 global hedge fund allocators including fund of hedge funds. By developing an understanding of the operational due diligence structures in place, this paper establishes a transparent benchmark against which operational due diligence frameworks may be compared.

The findings indicate there is a substantial variety present in the operational due diligence frameworks utilized. On a global basis, a myriad of hybrid approaches are in place at smaller allocators. Regionally, while a dedicated approach to operational due diligence is generally favored, no one framework emerged as a clear global leader. As compared to smaller allocators, larger organizations seemed to have more resources dedicated specifically to operational due diligence. These findings are consistent with predictions that hedge fund allocators such as fund of hedge funds, in part driven by investor demand, will continue to allocate more resources to underlying hedge fund manager operational due diligence.

Hedge Fund Regulation Doesn't Matter: An Artifical Operational Due Diligence Floor

The new proposed hedge fund regulations suffer from a number of missed opportunities to raise operational due diligence standards for both "professional" hedge fund allocators such as fund of hedge funds and consultants as well as for individual investors. This paper provides an overview of some of the primary shortcomings and pitfalls of the proposed legislation.

The Madoff Effect - An Analysis of Operational Due Diligence Trends

An analysis of trends in investor operational due diligence as a result of the Madoff crisis and the study of a Madoff Effect developing after recent frauds which influences investor operational due diligence.

The Madoff Identity: A New Operational Due Diligence Paradigm in a Post-Madoff World

An overview of the effects of the Madoff crisis on hedge fund operational due diligence from both the hedge fund's and investor's perspective.

Caveat Emptor - The Elusive Definition of Hedge Fund Due Diligence

A overview of the various meanings and services implied by the term due diligence in a hedge fund context.

What’s Wrong With Hedge Fund Operational Risk Ratings and Certifications?

An outline of the major problems associated with hedge fund operational risk ratings and certifications.

Analyzing Your Financial Advisor’s Due Diligence Process:
10 Questions Every Investor Should Ask

An overview of the most important questions investors should ask to evaluate the quality and effectiveness of their advisor’s hedge fund due diligence.

Providing the Tools to Help You Assess the Operational Risk of
Your Investment Partners

A summary of Corgentum’s value-added service offering for hedge fund investors.