Fri, Sep 4, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
New Managers July 2014

SCOTSTONE COLUMN: He who pays the piper calls the tune

He who pays the piper calls the tune: Investor due diligence has tightened hedge fund operational controls Ian Hamilton

This column is authored by Ian Hamilton, who is the founder of IDS Group. IDS provides fund administration services in Africa and Europe through Malta. He is also the founder of Scotstone Investments, a company that has fund structures and services for global emerging new managers.

It is not an easy ride for many hedge funds with the new institutional investors now calling the tune.

Investors in the past have unfortunately been sloppy in their due diligence when investing in hedge funds. One has only to see what Madoff was able to get away with and also to look at the institutional names involved in feeder funds into Madoff's fund.

Private investors do not have the resources to do a full due diligence test but there are short check lists that at least reduce much of the work needed. I call my list "Terms of Engagement" and it is the following:

  • The investment manager should be a licenced entity in the jurisdiction they are operating from. Check this out with the relevant authority. Do not rely on the fund managers word and marketing material.
  • The hedge fund should also be a regulated fund; while there are unregulated funds out in the market it is best to avoid them as corporate governance can be poor.
  • Check that there is a clear segregation of assets and bank accounts of the fund from the fund manager.
  • The appointment of a third party administrator and also the regulated oversight of the administrator. Make sure that the administrator is an actual party!
  • The use of a prime broker.
  • Custodian to ensure that the ......................

    To view our full article please login

    This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
    New Managers
    New Managers
    New Managers

  • Today's Exclusives Today's Other Voices More Exclusives
    Previous Opalesque Exclusives                                  
    More Other Voices
    Previous Other Voices                                               
    Access Alternative Market Briefing


    • Top Forwarded
    • Top Tracked
    • Top Searched
    1. Cliff Asness attracts $360 million as liquid alternative funds hold up[more]

      From Bloomberg.com: As U.S. stocks suffered their worst month in more than three years in August, Clifford Asness’s managed futures fund was able to profit. Investors are taking notice. The $9.12 billion AQR Managed Futures Strategy Fund pulled in an estimated $360 million in net subscriptions last

    2. Opalesque Exclusive: When the SEC calls, fund managers need to get out of their own way[more]

      Bailey McCann, Opalesque New York: New pressure is hitting alternative investment funds from all angles. So far this month both hedge fund and private equity players have seen enforcement actions, and subsequent fines over fees, disclosures, and misleading statements. Citi one of the biggest

    3. Performance - Einhorn and Loeb's hedge funds both decline 5% in August, Some target-date funds miss in the market turmoil[more]

      Einhorn and Loeb's hedge funds both decline 5% in August From Reuters.com: Hedge fund billionaires David Einhorn and Daniel Loeb saw their main funds lose roughly 5 percent in August during a dramatic market sell off, two people familiar with their returns said on Monday. Einhorn's

    4. Fortress hedge fund manager David Dredge says markets trouble on the way[more]

      From AFR.com: David Dredge of global hedge fund Fortress has built a career studying, predicting and protecting against the world's major financial crises. The recent convulsions in global sharemarkets are "just the beginning" of a painful adjustment as money drains from the emerging market economie

    5. North America - Puerto Rico agency plans talks with hedge fund creditors[more]

      From WSJ.com: Puerto Rico’s Government Development Bank is planning to begin confidential debt-restructuring talks with hedge funds that own its bonds as early as next week, said a person familiar with the matter. The parties are set to discuss a plan under which the investors would lend additional

     

    banner