Thu, Mar 5, 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. Outlook - Philippe Jordan predicts 'alternative beta' to displace hedge funds, Stan Druckenmiller says Europe, Japan stocks will outpace U.S.[more]

      Philippe Jordan predicts 'alternative beta' to displace hedge funds From Investordaily.com.au: The disappointing performance of hedge funds in recent years is a result of "too much money chasing too little alpha", argues Capital Fund Management. Speaking to InvestorDaily, CFM partner Phi

    2. Investing - Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched, Myriad hedge fund sold bulk of its Alibaba stake last year[more]

      Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched From Valuewalk.com: As hedge fund manager Seth Klarman, leader of the $28 billion Baupost Group, reviews 2014 performance and considers investors gained near 7 percent on the year, he cons

    3. Investing - As rig count falls, hedge funds pile into long crude futures, Parus tactically shifts long/short exposure ratios, Mario Draghi outflanking Kuroda as bearish euro bets surge, Prime Capital’s 500.com bet derailed after 41% drop[more]

      As rig count falls, hedge funds pile into long crude futures From 247wallst.com: In the week ended February 27, the total number of rigs drilling for oil in the United States came in at 986, compared with 1,019 in the prior week and 1,430 a year ago. Including 281 other rigs mostly drill

    4. Opalesque Exclusive: dbSelect’s top ten FX strategies average almost 10% in January[more]

      Benedicte Gravrand, Opalesque Geneva: In one of Deutsche Asset & Wealth Management (AWM)’s hedge fund platforms, called dbSelect, a number of FX Strategies did very well in January. dbSelect is a managed investment platform for unf

    5. Opalesque Exclusive: SEC’s Mark J. Flannery warns hedge funds against valuation misconduct[more]

      Komfie Manalo, Opalesque Asia: Securities and Exchange Commission chief economist and director of Division of Economic and Risk Analysis (DERA) Mark J. Flannery has warned of the risks posed by market misconduct, particularly in the true valuation of assets by hedge fund managers. In his