HF Due Diligence
Investing in hedge funds requires specialized due diligence and an experienced team. Our process is divided into two parts: 1) investment due diligence; and 2) operational due diligence. These two parts are inter-linked and are conducted simultaneously.
1. Investment due diligence
The goal of conducting investment due diligence is to determine the quality of the people involved, whether they have an edge, whether this edge is sustainable and whether the medium term outlook for their particular strategy is favourable. It is during this part of the process that we meet with senior investment professionals and conduct a review of the portfolio including trade examples and attributions. An important part of this review is understanding how managers react to losses.
2. Operational due diligence
Investing in hedge funds requires a lot more than an assessment of an investment strategy. It is also about determining whether the business itself is sound and client assets are being managed with appropriate oversight and controls. This is where having a robust and thorough operational due diligence process becomes essential. Key areas of focus include asset existence and pricing where we pay particular attention to how illiquid or hard-to-value securities are priced. Other areas of focus include control of cash movements, the quality of service providers and liquidity risks.