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Benedicte Gravrand, Opalesque London:

Some funds of hedge funds (FoHFs) and due diligence (DD) providers have had to review their methodology since the beginning of the credit crunch and the subsequent uncovering of frauds such as Madoff’s. Opalesque spoke to several industry players about their approach. Our conversations are presented in a Q&A format – as are DD forms.

Most of the FoHFs interviewed for this series said they had not re-organised their DD resources – they had been doing it right all along - although one said that “meaningful evolutions were implemented in the second half of 2008.” Although no new risk areas have been introduced since last year, all managers tend to focus more on some areas of risk now. All admitted to having changed their manager selection criteria somewhat. None of them outsource their DD process but most use outsourcing services for background checks. They do not believe that managed account platforms are a panacea although they are divided about what they think these platforms do.

Marc Towers is director of Operational Due Diligence for attribution at Pacific Alternative Asset Management Company LLC (PAAMCO), an independent FoHFs investment firm with offices in the U.S., the U.K. and Singapore (www.paamco.com). PAAMCO’s assets under management amount to $9bn.

1. Have you reorganized the due diligence resources within your company to address the increasing need for due diligence?

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