Deep Hedge Fund Due Diligence Pays For Itself, Focuses On Meaning In Details

Conducting due diligence on hedge funds and other non-traditional investments costs much less than the damages associated with potential fraud or misrepresentation, a report from SwissAnalytics concluded.

One area of focus should be in the area of valuations. “It is absolutely crucial to determine who provides the values for individual positions,” the report noted, with specific highlight on basis of how such values are determined. In particular, it is not uncommon that values of underlying positions, particularly less liquid instruments used by certain macro hedge funds, end up being inflated. This has resulted in several situations where the corresponding write-offs were 20% or more.