Operational Due Diligence

Just a heads up, I’ve been reading a lot of articles in Google News lately on hedge funds and have noticed many familiar manager names popping up. There are a lot of new articles coming out saying that a manager is either a.) not doing well b.) doing well or c.) commenting on the market turmoil.

I’m guessing that people in the fund of funds industry (our clients) are also reading the media too and are more likely to know if you omitted a recent media article in a report. To combat this, I’ve started doing a Google News search on top of the standard Google search. This seems to check for the most recently published articles.

With the influx of updates, they are probably looking for just this kind of information.

An excerpt from the following link provides a low dose of fresh language for due diligence:

www.naturaltraining.com/blog/2005/08/13/wanted-your-brains-not-your-slickness/

Icing the due diligence cake
With the ever widening array of hedge fund companies and investment products available it makes sense for investors to spend time weeding out unsuitable prospects.

Many fund of fund managers now have a comprehensive due diligence policy. This includes factors such as sending questionnaires to the hedge fund, investigating their processes and running a question and answers style “beauty parade”.

This allows them to control the process from start to finish.

More and more companies are chosen on merit as the result of proper research. By the time the presentation comes, they have all but made their decision.

Stephen Holt of Threadneedle Asset Management thinks the onus is on the fund of fund managers to drive the process of due diligence. “It’s better to spend the time upfront on the true aims and objectives of the fund than leave everything in the hands of one presentation”.

The due diligence process won’t go away, and nor do we want it to. It is in effect your sales process. If care and good management of this process is undertaken by your team, then the presentation should be the icing on the cake.

Should be…but there are a number of times presentations have fallen over at the last hurdle.

Your prospective clients want to see the results of their time and effort backed up by the presentation content and delivery – so spend the time to ensure you aren’t letting yourself down.

After the due diligence, it’s up to you to let your professional style come across in a compelling and engaging manner. A good presentation is the icing on the cake.

If you can do this then you’re well on your way to securing the deal. If not, the poorly prepared, formulaic presentation may stick in their minds.

So, while due diligence is important, don’t underestimate your ability to provide trust and a natural flavour of your team at this last crucial stage.

The following are the top 10 most requested managers on CheckFundManager.com for 2007:

1. Brett Stuart Messing, GPS Partners LLC
2. James Gerard Dinan, York Capital Management, LP
3. Daniel Alexander Schwartz, York Capital Management, LP
4. Barry Stuart Rosenstein, JANA Partners, LLC
5. Robert Scott McLellanm, Marble Arch Investments, LP
6. Peter Brendan Doyle, Horizon Asset Management Services, Inc.
7. Gary Edward Claar, JANA Partners, LLC
8. Donald Ellis Morgan, III (also Donald Earle, Brigade Capital Management, LLC
9. Andrew Victor Rechtschaffen, Obrem Capital, LP
10. William A. Ackman, Pershing Square Capital Management, LP

The following are the top 10 most requested managers on CheckFundManager.com for Q1 and Q2 of 2008:

1. John Alfred Paulson, Paulson & Company
2. Paul Matthew Britton, Capstone Asset Management LLC
3. Christopher Neil Brodie, Krom River Partners LLP
4. Lee Atzil, Broadway Gate Capital LLC
5. Adam Bryan Stern, AM Investment Partners LLC
6. Jay Alexander Johnston, Gramercy Advisors, LLC
7. Mark Lawrence Friedman, AM Investment Partners, LLC
8. Dane Carl Andreeff, Andreeff Equity Advisors, LLC
9. Robert Scott Koenigsberger, Gramercy Advisors, LLC
10. Jeffrey Lance Bellman, Bellman Walter Capital, LLC

As a small business, we rely heavily on the clients who trust us enough to continue to send due diligence requests our way. When looking at our “top client list” I notice that these are also the people/businesses that we speak to the most and have therefore built a relationship with.

I’m going to suggest the following changes be made to our website:

1. A direct contact, with phone number and extension be placed on each logged in web page. That way if anyone was to have a question while logged in, either looking at a report or viewing one, they can pick up the phone and reach someone they know.

2. Call whenever there is newsworthy information. Something as easy as “I just wanted to give you a quick heads up, there were a few large federal tax liens on Mr. J. Smith. You might want to take a look at the report, as I have just uploaded it to your account.”

I was hoping that this posting might drive discussion on how to build a more solid relationship with clients. Also, if any FOF’s manager or one of our clients reads this, please feel free to post comments or concerns based on how easy or hard it is to get a hold of us, etc…