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Alternative Market Briefing

Deutsche Bank survey reveals investor due diligence has tightened hedge fund operational controls

Tuesday, June 17, 2014

Bailey McCann, Opalesque New York:

Hedge funds that refuse to provide adequate transparency is often the sole reason for an investor veto according to new information from Deutsche Bank. Deutsche Bank’s Global Prime Finance group’s third annual Operational Due Diligence Survey, polled investors globally representing over $2.72tn of assets. The data shows the five most frequently cited red flags are an unwillingness to provide transparency, inadequate compliance policies, poor segregation of duties, lack of experience in critical roles and inappropriate valuation policies.

The survey polled 70 investor entities globally with a hedge fund allocation in excess of $730bn, including consultants, endowments, public pensions, government organizations, insurance companies, funds of funds, private banks and family offices. 72% of respondents manage more than $1bn in hedge fund assets under management.

Investors are also taking a close look at fees charged to the fund. 64% of respondents will investigate miscellaneous expenses and may place limits. Investors have little tolerance for expenses such as employee compensation, marketing and non research related travel being charged to the fund.

Also notable are operational due diligence teams which are taking on advisory roles with managers and providing advice to get to investment. While 65% of responding investors have the right to block an investment entirely, 81% are willing to take a consultative approach to allow a ......................

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