Originally posted at the hedge fund operational due diligence blog www.Corgentum.com/blog an overview of hedge fund operational due diligence consultants

1. Hedge Fund Operational Due Diligence Consultants –
Trust But Verify
Investors who first begin to consider alternatives (i.e. – hedge funds, private equity, fund of hedge
funds etc.) often take a number of different approaches towards the due diligence. Depending on a
number of factors including their own internal resources, institutional capacity, amount of capital to
allocate, nature of alternatives strategies they are considering and investment horizon investor
generally may take one of several paths. Some typical options include:
• Directly investing into alternatives themselves
• Utilizing a traditional investment consultant for guidance
• Investing with a pooled allocators such as a fund of hedge funds or managed account
platform
Each of these options presents its own unique benefits and challenges however, they do share one
common theme – the question of how each of these options approaches due diligence.
Hedge Fund Operational Due Diligence – A Specialized Skill Set
For purposes of simplicity let us classify due diligence into two broad categories: investment and
operational. In much the same way that investment due diligence has become a specialized field, so
too has operational due diligence. Over the last several years, operational due diligence has
developed into a similarly specialized practice area – and it is an area in which Corgentum
exclusively focuses. Regardless of whether investing directly into a hedge fund, utilizing a traditional
investment consultant or investing with a fund of funds or platform investors still should consider
utilizing the industry’s leading hedge fund operational due diligence consultant, Corgentum, to assist
in the operational due diligence process.
Operational Due Diligence On Fund of Hedge Funds
In addition to performing operational due diligence reviews of direct hedge fund investments
Corgentum also works with investors as a hedge fund operational due diligence consultant to
perform operational due diligence reviews on fund of hedge funds. This is a different exercise then
performing operational due diligence work on a direct hedge fund, and one which requires a detailed
understanding of the ways in which fund of hedge funds operate.
Complimenting the Due Diligence of Traditional Investment Consultants
Similarly, Corgentum works as a hedge fund operational due diligence consultant to compliment the
investment due diligence work of their traditional investment consultants. It is inherently a conflict
of interest for the same party offering investment recommendations to similarly offer advice on the
operational merits of a hedge fund or private equity manager. Biases are inherently present based
on the investment consultants opinion as to the investment merits of a manager, and the potential is
too great for an investment consultants operational convictions to be swayed one way or the other.
As such, many investors who utilize traditional investment consultants, also work with Corgentum as
a hedge fund operational due diligence consultant. Investors ranging from large institutions and
© 2011 Corgentum Consulting, LLC

2. professional allocators such as fund of hedge funds to high net-worth individuals rely on Corgentum
to continue to conduct the industry’s most comprehensive operational due diligence reviews.
Is Your Hedge Fund Operational Due Diligence Consultant Qualified and Experienced?
Investors must take steps to ensure that their hedge fund operational due diligence consultant,
possesses the qualifications and experience to conduct thorough operational due diligence reviews.
Some questions to ask include:
• Is a multi-disciplinary team of professionals utilized or is one area (i.e. – accounting or
compliance) focused on?
• Does experience exist covering different types of hedge fund strategies in different regions
throughout the world?
• Is the hedge fund operational due diligence process institutional in nature?
• Does the hedge fund operational due diligence process evolve over time to adapt to
changing industry practices?
Trust But Verify – Due Diligence on the Due Diligence Providers
Investors should perform due diligence on their hedge fund operational due diligence consultants to
ensure that they are not simply checking the box and telling investors to “Trust them” that a
manager is operational sound.
This includes not just outsourcing the operational due diligence process but becoming an active
participant in the process. Corgentum’s clients not only benefit from our analysis and opinions
regarding the operational risk of a particular manager, but Corgentum’s comprehensive process
explains in detail why such conclusions were reached.
The old auditors adage, “Trust but verify” is applicable not only when performing operational due
diligence on hedge funds and private equity funds themselves, but also on those performing the due
diligence.
Originally posted on the Corgentum Consulting blog at www.Corgentum.com/blog
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