•  
• Tweet
•  
•        Print
•  
•         Track Keywords
•  
• 

From the Hedge Funds World conference in Zurich: Patric Wisard from Swiss based due diligence experts AICONS reminded that 56% of hedge fund collapses are directly related to one or several operational processes, not investment strategies (Capco study 2003). In his view, hedge fund investor’s risk management is operational due diligence. AICONS performs operational due diligence, needing two experts visiting the manager onsite for a full working day. He thinks for the real issues you have to “dig deep” inside the operation, and fund the complete fund documentation, including master feeder structures etc. Hedge fund managers say the usual operational due diligence takes about one to two hours – a time frame Wisard says where you “not even scratch on the surface”. Wisard gave a number of curious examples of rather high risks that became obvious when doing his operational due diligence, often with large and sometimes well known funds.

Example 1: Distressed fund, $1 bln, 22 staff: The general partner and principals of the firm were found to have single signatory power on all prime broker accounts. This was found together with a lack of daily reconciliation of positions and cash balances by an administrator. Wisard says that such set ups provide no safeguards at all. History proves time and again that a human character can change quickly when personal or performance issues challenge the manager. Having no formal safeguards installed is an invitation to fraud.

Example 2: Fixe......................

To view our full article Click here