White-collar investigator warns investors against renewed complacency

Some believe investors are far too prudent, some believe they are too credulous. To the former FBI Special Agent whose job is to check on hedge fund managers' background, it would be the latter... When it comes to new managers, he sees investors doing a lot more of their own homework on them.

Then there are those fund managers who come from firms that have a history. The most obvious ones, nowadays, are the ex-SAC managers that are either being hired by other firms or setting up on their own. They are, according to Springer, subject to more background checks than average. Those hiring managers with a history do not want to risk reputational risk and want to demonstrate to their clients that these managers were thoroughly checked; this can be done with outside investigators.

"We have to sit down with the manager and say, as you know there is a lot of controversy here and it's all about avoiding headline risk, reputational risk," he explains. "The manager understands that he is going to have to undergo extremes of scrutinizing."

"I think when you do that, you are going to have some tremendous emerging managers," he continues. "There were a couple of firms up in Greenwich, the FBI executed search warrants on them, some of those firms closed and lots of talented managers went elsewhere and started their own firms. So they are going to be scrutinized a whole lot more, but it's going to withstand the scrutiny going forward." ...

You can read B. Gravrand's full article here.

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