Hedge Fund Due Diligence: Professional Tools to Investigate Hedge Fund Managers (Wiley Finance)

323 Pages·2008·2.15 MB·English

by  Randy Shain

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Hedge Fund
Due Diligence
Professional Tools to Investigate
Hedge Fund Managers
RANDY SHAIN
John Wiley & Sons, Inc.
iii
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Hedge Fund
Due Diligence
i
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ii
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Hedge Fund
Due Diligence
Professional Tools to Investigate
Hedge Fund Managers
RANDY SHAIN
John Wiley & Sons, Inc.
iii
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Copyright(cid:1)C 2008byRandyShain.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
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LibraryofCongressCataloging-in-PublicationData:
Shain,Randy,1965–
Hedgefundduediligence:Professionaltoolstoinvestigatehedgefundmanagers/
byRandyShain.
p. cm.–(Wileyfinanceseries)
Includesbibliographicalreferencesandindex.
ISBN978-0-470-13977-6(cloth/website)
1.Hedgefunds. I.Title.
HG4530.S485 2008
332.64(cid:2)524–dc22
2007039388
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
iv
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Contents
Acknowledgments vii
Introduction xiii
CHAPTER1
HedgeFundGrowth—WhatItMeanstotheInstitution 1
CHAPTER2
WhatIsDueDiligence?WhatAretheVariousTypesofDue
Diligence? 9
CHAPTER3
WhatKindsofHedgeFundFailuresDoesthePressDiscuss?
WhyDoMostHedgeFundsthatFail,ReallyFail? 13
CHAPTER4
CantheChancesofInvestinginFutureFailuresBe
Lessened/Prevented?How? 21
CHAPTER5
InvestigativeBackgroundReports—TheBeginning:Identify
YourTarget 31
CHAPTER6
TheCourts 47
CHAPTER7
NewsMedia:IsNexisYourOnlyOption? 123
CHAPTER8
RegulatoryBodies 137
v
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vi CONTENTS
CHAPTER9
CredentialsVerifications 155
CHAPTER10
CorporateRecords:NotJustD&BAnymore 171
CHAPTER11
TheInternet:WhatItCanDoandWhatItCan’t 187
CHAPTER12
PublicRecords—IsThatAllThereIs? 197
CHAPTER13
WhatYouThinkIsHelpful,ButIsn’t 229
CHAPTER14
TheLaw 235
CHAPTER15
CreditReports 241
CHAPTER16
WarningSigns:RedandYellowFlags 249
CHAPTER17
Conclusion 271
Notes 287
Index 295
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Acknowledgments
E
mbarking on this project was a new experience for me. (Hopefully, that
won’t be too obvious upon your reading the book.) I have edited thou-
sands and thousands of 20+-page reports, accumulating a fair amount of
knowledgeofsyntax,language,andtoneintheprocess.Certainly,it’salso
true that I have spent nearly two decades specializing in background due
diligence,soIthought,howhardcoulditbetowriteaboutit?
As it turns out, pretty damn hard. Writing an article here and there
or expounding on the topic in a new business meeting (or, G-d forbid, to
friends foolish enough to ask questions) is one thing. Writing 250 pages
for an institutional audience turns out to be another. Still, I have taken to
comparingtheprocesstothefeelingIgetwhenIamwatchingamoviethat
failstoentertainmecompletelyyetremainsinmythoughtsforafewweeks.
Theprocessitselfmightnotbedescribedasfun,butIamdamnproudofthe
waythisbookhasturnedoutandhopeithelpsdowhatJohnWileywanted
ittodowhentheeditorsfirstapproachedmetowriteit.
OnethingIrelearnedinpenningthistomewasthevalueIplaceoninter-
actingwithotherswhosharemypassionforthistopic.Thelatemanagement
guru Peter Drucker had it right when he espoused the idea that employees
are a company’s value, not its cost. The staff at BackTrack, now part of
FirstAdvantageInvestigativeServices,isincrediblytalentedandhardwork-
ing.Beyondthat,theyprovedtimeandagainthatwhenIneededhelp,allI
hadtodowasask.Ofcourse,onecouldarguethatsinceIamtheirbossthey
hadnochoicebuttolistentome,andIamsuretosomeextentthatcannot
befactoredawayentirely.Yet,thiscannotexplaineverything,orevenmost
ofthereason,fortheircompetence,enthusiasm,andconcern.
Specifically, no thanks are enough for Casey Drucker (ne´e Kahl, a far
more alliterative name, apologies, sort of, to her husband Steve). Casey’s
responsivenessandwillingnesstotakeonever-increasinglevelsofresponsi-
bility paved the way for me to have enough time to write every day (albeit
not all day, as that was well beyond my capabilities), without worrying
aboutwhatwouldhappentotheoffice.Caseyrunsourfirmasifitwereher
own;thereisnobiggercomplimentIcangive,otherthanpointingoutthat
thereisnooneelseI’dwanttoruntheshow.
vii