Our Process

Forensic-Quality Analysis

Our team has decades of experience in alternative and traditional investments and has produced over 1,000 due diligence reports — consistently flagging potential problems before an investor allocates capital.

Our company is based in the New York City area, yet we travel anywhere to conduct the on-site interview that is an essential part of our comprehensive reports. We perform due diligence as if it were our own money being invested. This is not a simple data-collection effort. We ask the hard questions, probe for details, look for inconsistencies and abnormalities, and cross-check and verify results. Even though our process has stood the test of time, we continually update our approach to adapt to industry changes.

Report Process

  • Gather documentation from the Investment Manager:
    • Offering memo
    • Pitch book
    • List of service providers
    • Breakdown of key assets
    • In-house due diligence questionnaire
    • Audited financials (all years)
    • Ownership statement
    • Structure chart of personnel
    • Organization chart
    • Corporation documents
    • Biographical information
    • References
  • A "Preliminary Report" consist of the following :
    • Confirm performance (from admin)
    • Confirm AUM (from admin)
    • Verify service providers
    • Review most recent audited financial report
    • Company news search
    • Individual media search (up to three key individuals)
    • Degree verification (up to three key individuals)
    • Regulatory verification (firm and up to three key individuals)
    • Verify fees & expenses (from OM and audit)
    • Key position breakdown
    • Redemption liquidity summary (from OM)
    • Legal & Regulatory Questionnaire
    • Review ownership
    • Review personnel structure
    • Preliminary executive summary
    • Preliminary HFDDX opinion summary
  • Extensive background check on firm and up to three key staff. U.S., Canada, and U.K. reports included (other country reports may incur a surcharge):
    • Executive overview
    • Regulatory and litigation summary
    • Biographies
    • Media & internet summaries
    • Personal data summary
    • Investment publications research
    • Extensive internet, media, and news publications search
    • State & federal regulatory agency references network
    • SEC & FINRA arbitration & disciplinary action archives
    • Stock exchange disciplinary decisions
    • Multiple educational verifications (signed consent needed in the U.K.)
    • Limited employment history lookups
    • Other professional credentials verification
    • Corporate affiliations research
    • Business filings research
    • SEC cases & proceedings
    • SEC national non-public documents research
    • FINRA disclosure events research
    • Investment advisor registrations research
    • U.S. federal denied persons list research
    • NFA/CFTC & FINRA regulatory registrations
    • Multiple property records research
    • Multiple state criminal records
    • Multiple state dept. of corrections incarceration, parole, and probation
    • Multiple county level criminal records research
    • National bankruptcies, liens, and judgments
    • Federal criminal, civil, appellate, bankruptcy (subject and company)
    • 50-state civil court records research (subject & company) & UCC filings
    • Name, social security number validation, relatives and address history
    • United Kingdom: directorships, limited company essentials financial report, U.K. regulatory, U.K. media, insolvencies, receiverships, liquidations, and county court judgment research
  • We require the manager to sign and return our Legal & Regulatory Questionnaire or produce a copy of form ADV from the SEC, both of which query the manager about convictions, felonies, name changes, etc.
  • Verify with the Administrator:
    • Assets under management
    • Performance
    • Signature controls
    • Independence of pricing
    • Collaboration with auditor on audit
    • Adherence to investment guidelines
    • Oversight of cash movements
    • NAV calculation
    • Direct prime broker access
    • Concentration risk
    • Historical recap of errors or restatements
  • Verify with the Auditor:
    • Confirm the authenticity of the audited financial report
    • Confirm that auditor has indeed been retained for services
    • Extra verification for an unrecognized auditing firm
    • Assets under management
    • Performance
  • On-site visit at the manager's office discussing:
    • Strategy
    • Risk control
    • Operations
    • Pricing
    • Backgrounds of key staff
    • Experience
    • Terms
    • Correlations
    • Diversification
    • Performance
    • Assets under management
    • Assets used
    • Systems
    • Staff
    • Affiliated companies
    • Conflicts of interest
    • Compliance
    • Personal accounts
    • Trade processing
    • Crisis controls
    • Stress Testing
    • Performance expected during market dislocations
    • Adherence to partnership agreement
    • Education level
    • Experience
    • Fees, expenses, hidden charges
    • Instruments used and any changes
    • Investment limit breaches
    • Markets traded
    • Liquidity of market traded
    • Liquidity of fund terms
    • Operational deficiency
    • Other operational changes
    • Portfolio leverage review
    • Pricing procedure changes
    • Redemption problem highlights
    • Signature authority changes
    • Strategy changes
    • Sub-accounts and/or sub-funds
    • Holding period
    • Redemption Review
    • Registration
    • Side pockets
  • Attorney review and cross reference of documentation:
    • Offering memo
    • Pitch book
    • Audited financials
    • Ownership statement
    • Structure chart
    • Organization chart
    • Corporation documents
  • Executive Summary: The most important and unusual findings are summarized in this section. It features warnings and areas of concern or ambiguity, highlighting discrepancies.
  • Opinions: The highlights and lowlights are expounded upon and discussed in the context of what is normal or unusual for hedge funds in the current climate.
  • Rating: Each fund is rated in several categories with a 5-star system.
  • Recommendations: The team writes its recommendations and the reasons for them on the efficacy of a potential investment from an institutional investor's point of view.

Note: Not every item in the list is applicable or possible in all cases.

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