The specialist operational due diligence adviser Prism Alternative Investments is considering setting up in the Asia Pacific region to both improve its own capabilities around the world and expand its business.
Prism’s founder, Lauri Martin, and client relations manager, Heinz Haas, spent the past two weeks in Australia speaking with hedge fund industry participants and others.
Martin said there was plenty to be done in the Asia Pacific region and it was also important for the advisory firm to be able to traverse the continents. She is also considering hosting a conference on operational due diligence for hedge fund managers in Hong Kong this year.
New York-based Prism is a boutique adviser established in 2009, initially offering bespoke operational due diligence on managers on behalf of big investors as well as research on fund administration companies.
Last year Prism launched a new service, which it calls its “platform”, that offers hedge funds an annual audit of their operational capabilities, delivering them a “Wall Street quality” report, of about 40 pages in length, for their own benefit and for clients.
The platform is available only to hedge funds of institutional investment quality, which pay an annual fee of $US25,000 covering due diligence costs.
The client base includes banks, funds of funds, sovereign wealth funds, insurance companies, endowments – across all three services. The number of clients is 30 all around, Martin says.
Operational due diligence is a time-consuming task. Prism spends about 70-80 hours on each fund, looking at structure, internal controls, safeguarding of assets and management teams. The firm does not assess the managers’ investment strategies.
Martin, who has personally performed more than 1,600 operational due diligence assignments in her 18-year career, worked with JP Morgan, Ernst & Young and the hedge fund investor UBP, prior to branching out on her own.
She said the operational risk profession really got started after the Barings collapse following the Nick Leesontrading fraud of 1995.
“People are mainly worried about whether there is likely to be a fraud,” she said. “Firms that submit to an annual due diligence are unlikely to be in that category.”
She believes that as the annual review process takes hold it will provide for more stability in the hedge fund industry.
She does not have a strong view on hedge fund fees but notes that managers need to reinvest back into their firms’ infrastructure.