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.

Our company is based in the New York City area, but the on-site interview is conducted in person wherever the manager is located.

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
  • Among the first steps of the report are:
    • 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:
    • 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.