When a hedge fund doesn’t know when to say when to due diligence information requests

In the current environment investors are increasingly allocating more resources to hedge fund due diligence. Necessarily, hedge funds are similarly required to dedicate commensurate increased resources towards responding to these due diligence requests. Accompanying these increased resource allocations, there seems to be a new willingness on the part of the hedge funds to demonstrate transparency – particularly in regards to operations.

Investors typically turn to a hedge fund’s documentation to demonstrate this. While data collection, review and analysis is a core part of any operational due diligence review, there is often a dangerous misconception at times during the due diligence process that the more documentation an investor collects, the more robust the due diligence. This broad assumption tends to sacrifices information quality for total page count. Hedge fund’s themselves may also fall prey to this notion by attempting to drown investors in documents, not all of which may be relevant to the investor due diligence process. When a hedge fund doesn’t know when to say when to information requests, in some cases this can be representative of operational risks of equal weight to those imputed to a fund which does not provide such a detailed level of transparency to being with.

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