Ū Franchise Risk – Both certified and highly rated hedge funds have failed for primarily
operational reasons
Ū Conflict of Interest – Persistent investor concerns from having the hedge fund under evaluation
also serve as the paying client
Ū Cookie-Cutter Approach – Lack of customization in most operational rating agencies reviews
has led to the creation of “canned” reports
Ū Poor Market Perception – Operational ratings and certifications are primarily seen as a
marketing tool by investors and hedge funds
Ū Information Decay – Ratings and certifications are as of a specific point in time and quickly
lose relevance during periods of organizational change
Ū No on-going monitoring – Ratings and certification agencies often do not pro-actively
monitor hedge fund operational risks in between rating cycles, instead self-reporting is required
by the hedge fund
Ū No on-going support – Hedge funds are often left with little real-world guidance on
operational risk management and due diligence meeting preparation after a ratings or
certification review is completed
Ū Limited scope – Operational ratings and certifications do not incorporate all the major
operational risks of concern to hedge fund investors including reputational risks and meta risks
Ū Few Actionable Recommendations – Hedge funds generally are provided with few actionable
steps to effectively capitalize on operational strengths and minimize weaknesses
Ū Operational due diligence meeting preparation
Ū Mock operational due diligence audits
Ū Operational efficiency analysis
Ū Development of investor operational due diligence functions
Ū Implementation management
Ū On-call due diligence meeting services
Ū Operational best practice advisor
Contact:
Jason Scharfman, Managing Partner
scharfman@corgentum.com
corgentum.com
What’s Wrong With Hedge Fund Operational Risk
Ratings and Certifications?
Major Risks and Concerns
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