© 2010 Corgentum Consulting, LLC
Information Overload Red Flags –
When a hedge fund doesn’t know when to
say when to due diligence information
In the current environment investors are increasingly allocating more resources to hedge
fund due diligence. Necessarily, hedge funds are similarly required to dedicate
commensurate increased resources towards responding to these due diligence requests.
Accompanying these increased resource allocations, there seems to be a new willingness on
the part of the hedge funds to demonstrate transparency – particularly in regards to
operations. Investors typically turn to a hedge fund’s documentation to demonstrate this.
While data collection, review and analysis is a core part of any operational due diligence
review, there is often a dangerous misconception at times during the due diligence process
that the more documentation an investor collects, the more robust the due diligence. This
broad assumption tends to sacrifices information quality for total page count. Hedge fund’s
themselves may also fall prey to this notion by attempting to drown investors in documents,
not all of which may be relevant to the investor due diligence process. When a hedge fund
doesn’t know when to say when to information requests, in some cases this can be
representative of operational risks of equal weight to those imputed to a fund which does not
provide such a detailed level of transparency to being with. Some key questions to consider
during the due diligence documentation collection process include:
Are response requests Does a hedge fund provide a predetermined set of documents to begin the due diligence
pro-active or reactive? process? (i.e. – due diligence questionnaire, marketing presentation etc.) Or instead, is the
hedge fund reactive and only provide documentation when it is specifically requested?