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

Major Risks and Concerns

  • Franchise Risk – Both certified and highly rated hedge funds have failed for primarily operational reasons
  • Conflict of Interest – Persistent investor concerns from having the hedge fund under evaluation also serve as the paying client
  • Cookie-Cutter Approach – Lack of customization in most operational rating agencies reviews has led to the creation of “canned” reports
  • Poor Market Perception – Operational ratings and certifications are primarily seen as a marketing tool by investors and hedge funds
  • Information Decay – Ratings and certifications are as of a specific point in time and quickly lose relevance during periods of organizational change
  • No On-going Monitoring – Ratings and certification agencies often do not pro-actively monitor hedge fund operational risks in between rating cycles, instead self-reporting is required by the hedge fund
  • No On-going Support – Hedge funds are often left with little real-world guidance on operational risk management and due diligence meeting preparation after a ratings or certification review is completed
  • Limited Scope – Operational ratings and certifications do not incorporate all the major operational risks of concern to hedge fund investors including reputational risks and meta risks
  • Few Actionable Recommendations – Hedge funds generally are provided with few actionable steps to effectively capitalize on operational strengths and minimize weaknesses

Our Service Offerings

  • Operational due diligence meeting preparation
  • Mock operational due diligence audits
  • Operational efficiency analysis
  • Development of investor operational due diligence functions
  • Implementation management
  • On-call due diligence meeting services
  • Operational best practice advisor

For More Information

What’s Wrong With Hedge Fund Operational Risk Ratings and Certifications?
Corgentum Consulting (1MB PDF)