In 2013 I wrote two articles on hedge funds and managed futures (CTA) due diligence: Five Components of Hedge Fund Due Diligence and Five Components of Hedge Fund Due Diligence Part 2. The first article was viewed from the perspective of the investor or allocator's and the second article was from the perspective of the CTA. This article will once again discuss the due diligence process from the investor's or allocator's perspective.
Below are five elementary ideas to keep in mind when performing due diligence on a hedge fund or CTA:
1) Audit trail of the due diligence process:The more organized and maintained the records are of the due diligence process on each manager, the better protected you are. There are two reasons for this:
a) In the event an investor asks for proof that due diligence was conducted, you have reports, evidence and data of the due diligence process.
b) If for some reason red flags or legal issues arise with the manager and their investors or with the regulators, you can prove that you actually performed due diligence on the manager. This became an issue for some firms claiming to have performed due diligence on Madoff, but in reality did not.
2) Account size tested for READ MORE
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Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at email@example.com Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com
Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.
Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Futures and options can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.