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2011 global hedge fund survey - Capital raising and due diligence - EY - United States

2011 global hedge fund survey: coming of age

Capital raising and due diligence

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“At the end of the day, you are only as good as your last performance.” Survey respondent
(North American hedge fund manager)

Hedge fund managers’ and investors’ top four selection criteria appear well aligned, although in different orders of priority.

Many hedge funds still believe that performance is the most important selection criteria. Managers are more likely to point to recent performance than are investors. In comparison, investors are more likely to point to transparency of portfolio holdings and performance attribution.

The view of due diligence has changed over the past several years, particularly with the high-profile scandals that have impacted the industry. While the long-term repeatable investment performance of the funds is still a large priority, investors have become more concerned with the operational due diligence and controls side of the business.

Capital is flowing to funds with robust infrastructure and highly regarded management teams who use reputable outside administrators, despite mediocre performance on returns at times.

Recent history has taught us that a hedge fund can recover from poor performance more easily than from issues of operational credibility, scandal or fraud.

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