Useful insights from the Hedge Fund Business Operations Association Conference held in New York last week. Operational due diligence representatives from a major investment bank platform, seeder, pension fund board member and family office shared their due diligence dealbreakers.
1. Reporting requirements. Need to have monthly estimates by a certain date, final numbers by a certain date and audited financial statements within 180 days and k1s in due time.
2. Lack of documented pricing policy
3. Data security controls – how are clients personl data protected.
4. Background checks – any major inconsistencies between what the fund says and what we discover.
5. COO or a CFO that is incompetent (not a joke!)
6. Middle/back office have to align
7. Attitude that fund is “terminally unique” and try to throw opacity into the discussion under the guise of being special
8. Need audited financial statements
9. Want to see explicit segregation of duties in the trade cycle.
10. Prospectus creep – find language that is unfriendly to underlying managers – does not have clear rationale. Be wary of using “at sole discretion of the investment manager” too often.