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Hedge Fund Due Diligence Guide: Top10 list

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Presentation outlines 10 tips for hedge fund due diligence best practices including know your investors, be transparent and complete a due diligence questionnaire in advance so you are prepared.

Presentation outlines 10 tips for hedge fund due diligence best practices including know your investors, be transparent and complete a due diligence questionnaire in advance so you are prepared.

Published in Business , Economy & Finance
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  • Agree with the 3rd one. Successful acquirers also take the time to ensure that their due diligence teams are kept up-to-date on the investment thesis and use it to guide their work. I highly recommend MD where you can learn more about best practices in due diligence: http://www.datasite.com/discovery-due-diligence-essential-steps021.htm
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  • 1. Top 10: Due Diligence Guide for Hedge Fund Managers
  • 2. Hedge fund due diligence is at forefront for Hedge Fund Operational Due Diligence investors and managers alike – Inquiries are increasing Lack of transparency no longer acceptable – Competition for investments is high Operational excellence is becoming top factor in allocation decisions Our Top 10 list was developed in-coordination with leading hedge fund professionals.
  • 3. Understand what their goals are. If you don’t #1 Know your investors & Build rapport. know what they are, ask them! Remember it’s not about you – aim to form a long-term partnership
  • 4. Explain the designs and processes of your # 2 Educate your investors. operations, particularly when it comes to your technology. Anticipate questions your investors may have – Be prepared with clear and concise answers Dedicate 20% of your presentation to educational content And Remember: “People do business with people they know, like, and trust.”
  • 5. # 3 Outline your budget. Investors want to know where management fees are being allocated Identify costs around: – Staffing: payroll, taxes, health and benefit costs, etc. – Building and facilities: consider office expenses and lease obligation – Technology: If you don’t have an in-house IT staff, ask your IT service provider to do this – Legal and Administrator fees – One time versus reoccuring
  • 6. Written results are the best way to impress #4 Document everything. investors. Clear documentation on: Partnership/operating agreement Private placement memorandum – Subscription agreement – Allocations – Distributions, redemptions and transfers – –
  • 7. You will score points with investors if you are up #5 Be transparent. front about everything and don’t attempt to hide anything. What transparency means… – 100% see-through of research, decision-making process and investing – Regular risk reporting • Proactively send to investors (monthly, quarterly) • Investors will judge on how fast you can provide these reports – Thorough hiring process; Highlight pedigree of talent
  • 8. A due diligence questionnaire is a great exercise #6 Complete a DDQ. for funds to complete. You can also compile a comprehensive presentation or simply have an open question and answer session with your potential investors. Use the Managed Funds Association’s DDQ to prepare and identify the questions investors may ask: Download it Here.
  • 9. Hire a consultant to help you with this – it is the #7 Try a mock due diligence review. single easiest way to prepare for a real investor review. There is a lot to cover: Due Diligence Preparation Fund Service Providers Fund Snapshot Regulatory Registration – – Investment Strategy Google Search – – Historical Returns & Stats Risk Factors – – Assets Under Management Risk Control – – Audited Financial Statements Operation – – Personnel Valuation – – Fund Terms Administration – – Fund Details Site Visit – – – –
  • 10. Don’t be afraid to call them if you need #8 Communicate with your service providers. clarification on their systems, processes, documentation, etc. – For example, ask your technology provider to create a “technology blueprint” for you.
  • 11. Test your systems. #9 Test, test, test. – Especially your disaster recovery system (at least quarterly) and show the results to investors Regular test instills confidence and opens lines of communications with investors Demonstrates your operational excellence
  • 12. Investors want to see that funds are serious and #10 Make operational excellence a priority. that they value operations and technology as vital aspects to their businesses. Advanced planning is essential; Anticipate and prepare for change – Use operational benchmarking to assess areas for improvement – Proactively prepare operations for upcoming regulations
  • 13. It’s an ongoing process that must continue to What’s Next for Due Diligence? improve and evolve Understand where the real risks reside and work to resolve – instill confidence with investors Educate your personnel and be transparent Invest in operations and technology that keep you functional and efficient Lastly, COMMUNICATE with investors openly and honestly
  • 14. Eze Castle Integration Overview 1995 To be the leading provider of IT services and technology solutions to the Founded investment community worldwide Mission Headquarters Boston New York City, Chicago, Dallas, Geneva, Minneapolis, Los Angeles, San Francisco, Singapore, Stamford and London. Additional 1.800.752.1382 Offices www.eci.com Phone www.eci.com/blog Website & Blog • Strategic IT Consulting • Business Continuity Planning • Outsourced IT & Help Desk • Disaster Recovery Core Services • Professional Services • Compliance Solutions • Managed Services • Storage Solutions • Startup & Relocation • Cloud & Colocation Services • Communications Solutions • Internet Service • Network Design & Management • E-Mail & IM Archiving
  • 15. Tel: 800.752.1382 www.eci.com