How much due diligence would you perform on a fund before giving them your $$$?

Discussion in 'Professional Trading' started by Jumpshot, Jul 1, 2009.

How much due diligence would you perform before giving someone $5 million?

  1. No Due Diligence

    0 vote(s)
    0.0%
  2. Minimal Due Diligence

    0 vote(s)
    0.0%
  3. Medium Due Diligence

    0 vote(s)
    0.0%
  4. High Level of Due Diligence

    3 vote(s)
    37.5%
  5. Complete and Thorough Due Diligence

    5 vote(s)
    62.5%
  1. Jumpshot

    Jumpshot

    On a 1 to 5 scale, how much due diligence would you perform before giving anyone your $$$. Lets say you had $5 million that you wanted to commit to a fund.

    (forgot to include poll in other post, moderators please edit thanks)
     
  2. Jumpshot

    Jumpshot

    I wanted to add that I believe a complete and thorough due diligence is to hire experienced reputable 3rd party auditors to look at the accounting, a private detective to look at the backgrounds of all the managers&staff, a complete physical tour of the operations along with sitting in on the operations for at least a day, etc.

    So "complete and thorough" would be costly, invasive and involve experienced 3rd parties.
     
  3. sjfan

    sjfan

    ... Why would you do any less than the most thorough DD possible?
     
  4. Jumpshot

    Jumpshot

    A very thorough due diligence would involve spending probably at least 10-20 thousand utilizing different third parties to verify the credibility of the person you are giving money to.

    Many persons want to save money, therefore, they will do the due diligence themselves. It also makes the person you are dealing with uncomfortable as you crawl through their books and subject them to this rigorous type of check.

    Unfortunately, crooks usually end up going back to the same game even after they are caught. In future cons, they learn to perfect their ways so that a good due diligence cannot detect their other motives.

    Only the highest degree of diligence will detect crooks, however, many investors simply are not willing to put forward the cash and the principals of any such operation will not be comfortable being investigated in this manner.

    So the con-games like Madoff will continue because many people will simply trust an individual because they can show a paper statement demonstrating gains. As we have learned, these paper statements are as good as the quality paper hanging in the bathroom...

     
  5. Reflect a little. Maybe do some thinking about your past work effort.

    Usually 15 minutes is enough to KNOW to throw the docs in the circular file. If you type up an evaluation of the top ten factors, it may stretch to 30 minutes for a top 50 type fund before you chuck it in the circular file.

    Thorough DD'S are only reserved for a quality find examination.

    Has anyone ever done a thorough DD on the place where you work?

    Most people keep lists of top performers in each potential app of cap area.
     
  6. I wouldnt give my 5 million to anybody. no single fund should get all of your money. diversify.
     
  7. Jumpshot

    Jumpshot

    My experience is the same crooks show up in the same operation. Google has made it easier for us to find them.

    For example, one name that comes to my mind is Mel Lifshitz. This guy's name appears on every scammy financial operation out there. Once you see his name, you know its a fraud.

    http://149.68.13.91/media/3/3e47a56354c84dad80a96f38289d055b.pdf

    However, sometimes finding those names requires more then just a google search. A private detective is more appropriate...
     
  8. At a minimum, a full background check and investigation into everyone who works at the fund, their lifestyle, spending habits, public records etc. Full check on the auditor. I'd also try to reverse-engineer their strategy and see if their returns are consistent with the market conditions e.g. if a short-selling fund is up big during a bull market I would be very suspicious and going over everything with a fine-toothed comb.
     
  9. Don't forget to sit down at the end, look the principal straight in the eye, and say "gotcha!" :D
     
  10. Pekelo

    Pekelo

    Is this a trick question? By the way answer depends on how much money I have. If I have 500 million, I can throw around 5 million without due diligence....
     
    #10     Jul 1, 2009