Hedge Funds Establishment Due Diligence nee Checklist

CoL wrote this as a due diligence list for prospective hedge funds. It’s also a good checklist for establishing a hedge fund.

• Ownership
• Control
• Biographies/references
• Background checks – criminal, regulatory, credit, personal, and other.
• Size, scale, scope
• Level of investment of founders/officers/employees
• Experience
• HR
• Compensation
• Turnover
• Terms, of course, gating, etc, concentraion,
• Key man provision
• Objectives, philosophy, playing field, etc
• Geography
• Derivatives
• soft-dollar, research arrangements, etc
• Hedging, liquidity, leverage
• definition of ‘cash,’
• Trade allocation, stock borrow
• Authorized traders, authorized cash handling, auth acc’t opening,
• Risk control systems, software, vendors
• Operational controls, staffing, third-party administrators, PBs
• Outside Counsel, Acctg, Custody, counterparties
• Internal controls, order mgmt
• Pricing [does Advent magically know what the value of every security is every day? Some are only estimable by definition.]
• Corporate actions
• Position Limits
• Technology usage and growth,
• Business Continuity and planning
• Personal trading policies
• Insurance, corp and otherwise,
• Tax prep and audit,
• Costs,
• Intangibles – desire, commitment, personality fit, etc

TMF: Re: What would you say… / Deranged Monkey Criticism .

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