The SEC is now requiring fund managers to report more information by revising Form ADV disclosures. In this article, Mr. Scharfman explains that it is still important to perform operational due diligence regardless of changes made to ADV disclosures and the yellow flags to look for when doing so. The piece also encourages investors to be aware of the fact that just because the SEC might require more information from funds, does not mean that there is as much quality in the documents as there is quantity.

To read the full Institutional Investor article, please click here.

Click here to discuss this post.

Permalink

The fees and assets, as well as the outside members affiliated with the fund, would have been looked at more carefully during an operational due diligence review.

It seems that because Cannon’s pay rested on the performance of Matador, Cannon felt the need to inflate Global’s share price when it wasn’t doing as well as he’d hoped. Cannon also went as far as to put a false share price on Matador’s monthly brokerage statements.

It is unclear just how long Cannon was getting away with these discrepancies in fund data and trading, but perhaps a deeper look into the fund would have raised yellow flags for investors seeking transparency among the funds they were choosing to invest in.

Cannon’s lawyer is refuting the allegations brought up against his client and says that Russell Cannon did not do anything wrong and that they disagree with charges.

“The SEC asks that Cannon be ordered to halt the allegedly fraudulent activities, pay a fine and disgorge profits.”

Investors cannot solely rely on the SEC to detect fraud and other issues within hedge funds. This is why it is important for the investor to take it upon themselves to work with an operational due diligence consultant that will look use their expertise to focus in on the small details that may sometimes slip between the cracks, causing more serious problems in the long run.

Click here to discuss this post.

Permalink

Click here to discuss this post 

Permalink

The private equity study showed that 78% of those who perform operational due diligence on hedge funds do not perform due diligence on private equity.  68% of those 78% plan to do operational due diligence on private equity funds in the future- and most plan to do so in the next year.

Mr. Scharfman was quoted in the article, PE Manager: LPs back office inspection set to rise, written by Nicholas Donato. He said, “Institutional investors exhibit a post-Madoff type mentality where tougher questions are being asked around fund operations; the kicker being better relations for those GPs able to pass their expectations.”

 It is evident that even the most basic level of an operational due diligence review is becoming more common and essential within the private equity space.

To read the full PE Manager article, click here. (Subscription required)

Also, to read Corgentum’s  private equity study,  visit their website at www.Corgentum.com or click here.

Click here to discuss this post.

Permalink  

Newly Released Handbook by Jason Scharfman is an Indispensable Guide for Assessing Essential Non-Investment Operational Risks and Mandatory Reading for Limited Partners

Managing Partner of operational due diligence consulting firm Corgentum Consulting and former senior team member at Morgan Stanley’s Graystone Research, Jason Scharfman, has authored a groundbreaking new book,

“Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation and Documentation”, John Wiley & Sons, Inc., 371 pp , which is available today.

“Private Equity Operational Due Diligence” , addresses the unique aspects and challenges associated with performing operational due diligence reviews on both private equity and real estate funds. This essential guide provides readers with the tools to develop a flexible comprehensive operational due diligence program based on the author’s real world experience.

Corgentum is the preeminent global provider of independent operational due diligence reviews for investors. Scharfman is also the author of “Hedge Fund Operational Due Diligence: Understanding the Risks”, John Wiley & Sons, Inc., 300 pp, which is considered to be at the forefront of operational due diligence texts.

“Investors now have a comprehensive guide to develop and implement a functional operational due diligence program for private equity and real estate funds,” said Scharfman. “The techniques outlined in this book will allow limited partners to avoid risky funds and make better investment decisions.”

The 12 chapters of the book cover areas including techniques for analyzing private equity fund legal documents and financial statements, as well as methods for evaluating operational risks concerning valuation methodologies, pricing documentation and illiquidity concerns. The book is filled with case studies in operational fraud and other examples to help equip investors with the tools to avoid unnecessary operational risks and fraud. The book also outlines techniques for limited partners to incorporate operational due diligence into their private equity asset allocation and portfolio construction processes.

“Scharfman provides helpful insight into this emerging area of private equity risk,” said Francis X. Frecentese, Managing Director, Global Head of Alternative Investments, Citi Private Bank. “His guide offers limited partners the potential to efficiently identify and evaluate private equity operational issues and avoid unnecessary risk. Similarly, it offers general partners guidance as to best practices in light of institutional investors’ increasing demand to institutional-quality infrastructure and enhanced transparency.”

Additional topics covered include:

• Private equity fund advisory boards
• Valuation techniques, methodologies and standards
• Operational due diligence concerns specific to real estate funds
• Core issues to consider when beginning an operational due diligence review
• Advanced operational due diligence techniques when conducting an expanded analysis

A companion Website to the book includes sample checklists, templates, spreadsheets, and links to laws and regulations referenced in the book.

Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation and Documentation is available for purchase via Amazon.com.

About Corgentum Consulting:

Corgentum Consulting is a specialist consulting firm that provides investors with the industry’s most comprehensive and in-depth operational due diligence reviews. Corgentum partners with private equity and hedge fund investors, including fund of funds, pensions, endowments, investment banks, investment consultants, ultra-high net worth individuals and family offices to improve upon the efficiency and effectiveness of the operational due diligence process. The firm’s proprietary due diligence methodologies and innovative original research allows their clients to continually manage and mitigate their operational risk exposures. Corgentum’s sole focus on operational due diligence, veteran experience, innovative original research and fundamental bottom up approach to due diligence allows the firm to ensure that its clients avoid unnecessary operational risks. Corgentum is headquartered at 26 Journal Square, Suite 1005, in Jersey City, New Jersey, 07306. Phone 201-360-2430. More information is available at
http://www.corgentum.com.

About Jason Scharfman:

Jason Scharfman is the Managing Partner of Corgentum Consulting. He is recognized as one of the world’s leading experts in the field of private equity and hedge fund operational due diligence. Before founding Corgentum, Scharfman held positions focused on due diligence and risk management at Morgan Stanley, Lazard Asset Management, SPARX Investments and Research, and Thomson Financial. He has consulted with the U.S. House Judiciary Committee on the subject of hedge fund regulation. Additionally, he has provided training to financial regulators on the subject of hedge fund due diligence.

Link to this release on PRWeb.

Click here to discuss this post.

Permalink.

Corgentum’s study shows that out of all Limited Partners surveyed, 87% of investors perform some sort of operational due diligence. However, only 24% use operational due diligence consultants. This means that 62% of the 87% who perform due diligence, use internal resources.

Often, employees who are performing operational due diligence internally, have other obligations, making operational due diligence far from their primary job. This could potentially allow small important details to fall between the cracks.

 This study also shows that investors feel that they are at higher risk when investing in hedge funds as opposed to private equity funds. In fact, 74% of investors said that they perform operational due diligence on hedge funds, but not private equity funds.

Corgentum’s Managing Partner, Jason Scharfman, was quoted in the piece saying, “This study shows that private equity investors have not yet moved beyond Madoff, and are still lagging behind their hedge fund counterparts in the resources they are dedicated towards performing operational due diligence.”

In light of this recent research, Jason Scharfman will release his newest book, Private Equity Operational Due Diligence: Tools for Evaluating Liquidity, Valuation and Documentation (Wiley & Sons) on April 10, 2012.

Also authored by Mr. Scharfman, Hedge Fund Operational Due Diligence: Evaluating the Risks (Wiley & Sons).

Click here for the full Opalesque article. (subscription required)

Click here to reserve your copy of Private Equity Operational Due Diligence.

Click here to discuss this post.

Permalink  

The Benefits of Private Equity Operational Due Diligence- Paving the Way Ahead, covers the basics of an operational risk review as well as teaches you how to choose the right ODD consultant.

Topics covered include:
• Why Limited Partners should consider working with an operational due diligence consultants to assist in performing operational due diligence
• Why Limited Partners should perform operational due diligence on private equity funds, including a deeper look into government regulation and ongoing monitoring and the future of operational due diligence.

If you want to learn more about Private Equity Operational Due Diligence, pick up Corgentum’s, Managing Partner, Jason Scharfman’s new book, Private Equity Operational Due Diligence: Tools for Evaluating Liquidity, Valuation and Documentation, available everywhere April 10th.

For a must have book for hedge fund investors, Jason Scharfman’s Hedge Fund Operational Due Diligence book is also available.

Click here to discuss this post. 

Permalink

Mr. Scharfman is quoted in the piece explaining how Japan’s regulatory structure is a bit behind the United States and Europe.

“The Securities and Exchange Surveillance Commission (SESC) hasn’t accused AIJ of any wrongdoing, but that will change if it’s proven that AIJ hid funds overseas in the Cayman Islands. And it should be noted that Japan’s regulatory structure is only now catching up to those of the US and Europe.”

Mr. Scharfman also points out:

“Japanese investors, culturally, have been less inclined to put the screws to fund managers,” he says. “In other regions, post-Madoff, investors have realized that they have to look past any cultural hang-ups or not wanting to embarrass somebody or not be forward and ask certain questions. Japan has been behind the curve a little bit and they’re only now catching up.”

Furthermore, this article raises other due diligence issues pertaining to technology. Now, more than ever, investors are looking for specific documents from fund managers as a means to diving deep on the due diligence process. Mr. Scharfman was also quoted saying, “People are struggling with what to do with all the documents they receive when conducting due diligence and then how they analyze those documents. The solution will come down to how to organize and mine data that is generated in the due diligence process.”

To read the entire article, click here (subscription required).

Click here to discuss this post.

Permalink.

Corgentum Consulting’s, Jason Scharfman’s article, “Due Diligence Techniques for Success: Why Fund Managers Try to Manipulate Due Diligence,“ was featured on TabbForum, a news and opinion hub for the financial industry.

In this article, Mr.Scharfman discusses the importance of transparency between fund managers and clients. He explains how in situations like the AIJ scandal, fund managers would not even allow investors to perform any type of due diligence and that this is a red flag for investors.

Investors who are new to the due diligence process are often hesitant to ask tough questions of the fund managers, however they should take control of the process. The main goal of due diligence is to avoid risk. By performing due diligence correctly, investors can insure that they are investing their capital with the right manager.

To read the full article click here (subscription required).

Click here to discuss this post.

Permalink

This recent AIJ story has pushed operational due diligence into the forefront of important trends for investors. Because of the AIJ crisis, operational due diligence is on the minds of allocators looking to invest in hedge funds, private equity funds as well as other traditional funds.

Mr. Scharfman stresses the importance of operational due diligence regardless of fund size, reputation or popularity. He was quoted in the article saying, “In the case of AIJ, underfunded Japanese pension funds seemed to have placed profits ahead of common sense.” He also commented on the crucial roles pension fund managers should play when it comes to overseeing assets. “The job of pension fund managers is to exercise due diligence and protect assets, not simply chase high returns.”

The full article is available on Bloomberg website or via direct link here.

Click here to discuss this post.

Permalink.