Whether on behalf of individual investors or fund of funds who bear responsibility for the actions of the funds they manage, corporate investigators can be a crucial component in risk management - operational, headline and otherwise. If nothing else, the IMA story illustrates that if you don't work investigators on the front end, you may end up hiring them anyway...when it comes time to figure out where your money went.

Recently The Daily Caveat had the opportunity to discuss the challenges of hedge fund due diligence with the fine folks at Risk Magazine, the world's leading fianancial risk management journal. Seems appropriate to revisit the story, in light of continuing concerns in this arena:

Fund investors turn to private investigators

Risk Magazine
November 2005
By Jayne Jung

The recent to turn to private investigators to dig deeper into fund managers and to conduct due diligence

A spate of hedge fund-related scandals in recent months has increased concern among investors about fraud, and is prompting many to turn to private investigators to dig deeper into fund managers and to conduct due diligence. "What's going on with Bayou, Refco and Man Financial makes people nervous. And nervous people call investigators," says Michael Thomas, a partner at Caveat, a Washington DC-based corporate investigation firm...

...Caveat's Thomas says investors' focus is broader than the financial markets when making investment decisions, and with good reason. Something as simple as a driving under the influence of alcohol or drugs charge might cause investors to withdraw cash from a fund manager, he says. Investors don't want there to be any kind of question mark hanging over the integrity, or principles, of a manager.

The full article appears here.

-- MDT

Labels: Bayou Group, Kroll, Refco