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Alternative Market Briefing

Critical issues in due diligence, part 1: fraud, new regulations deepen investor scrutiny

Thursday, November 07, 2013

Bailey McCann, Opalesque New York:

In this series, we’ll take a deep dive into due diligence issues including difficult to spot fraud, the dangers of groupthink, regulatory changes, and how to conduct more active risk management.

Background

Since 2008, a steady stream of scandal and new regulation has kept both managers and investors on their toes. Many investors caught up in criminal activity like the Madoff Ponzi scheme, Bayou bankruptcy, or just old fashioned unanticipated losses such as Amaranth or MF Global, are taking a harder look at their investments going forward. Regulators too are asking managers to do more, and provide more. Together, these forces have moved independent due diligence and risk professionals into the spotlight. Once confined to quarterly or even annual reports compiled from pre-established questionnaires, due diligence and risk experts are fast becoming key players throughout the lifecycle of an investment.

Industry veterans are now coming to market with new businesses in an effort to help investors sort out the good investments from the bad. Fidelity Institutional just brought an alternatives platform to market that boasts not only access to managers, but access to research and third-party due diligence reports through strategic alliances with leaders in the space -- including CAIS, Goldman Sachs Asset Management (GSAM) and Morningstar –- distinguishing it from other firms that only offer access to alternative produ......................

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