Written by Bryan Goh of London-based fund manager First Avenue Partners LLP.
Yesterday's Part One can be found here: Source
Understand the Manager.
When one invests in a fund, one is really hiring the investment manager for the duration of the investment. When one hires someone, what are the considerations? Character and integrity, skill and technical expertise as evidenced by prior experience and by formal training, judgment, ability to manage people as much as investments, personality, are all considerations. Character and integrity can be checked with the use of professional background investigative services, court searches, regulatory registers, etc.
The value of reference checking is over estimated in hedge fund due diligence. All one gets is an opinion on whether someone is liked or disliked by the referee. References provided by the manager should carry little or no weight. In fact, the noise that that information brings can be so confusing one could argue that it should not even be sought. The analogous situation is a portfolio that is marked by the manager. If one will not accept that, don't take a reference supplied by the manager. The exception is references sought to corroborate and collect factual information. But this is a mechanical exercise that can be outsourced or delegated.
This implies that all the information and impressio......................
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