3. Is a fund dependent on one individual for its P&L?
Deep teams have a greater ability to identify investing opportunities across sectors, asset classes and regions. Deep teams also reduce the likelihood of key-man risk. However, if a fund is dependent on one individual for its P&L, make sure there is a key-man clause.
4. Do the fund’s asset and liquidity mandates align?
If managers are investing in illiquid strategies, investors need terms that will ensure the manager won’t be forced to sell the portfolio from a position of weakness. Liquidity tools can help you identify if the terms and assets are properly aligned.
5. Compared to its peers, how does a fund pair-up in terms of risk-reward, correlation and liquidity?
Always benchmark a fund to its peers using analytical technology that provides data on how similar funds are behaving.
6. How does a fund attempt to deliver alpha through time?
Invest with funds that cannot be cheaply replicated by a liquid index. Use tools that measure the alpha coefficient and help you understand the fund’s historical performance and its future potential.
7. What is the demographic of the fund’s investors?
Ideally a fund has a diversified investor base consisting of sophisticated institutions, family offices, high-net-worth investors, and is not too concentrated with any single of group of investors. We work with third-party operational due diligence providers to provide us with insight into a fund’s investors base.
Our investment committee meets quarterly to discuss the results of our rigorous quantitative and qualitative assessments with respect to a prospective fund. We decide if the fund’s performance and metrics are compelling from a quantitative standpoint, if our qualitative research demonstrates the fund is structurally and operationally stable, if the fund’s documents are consistent with their stated terms, and if this all aligns after our onsite visit with the manger. After the initial investment is made, there is an ongoing review. We are always evaluating new funds in the marketplace.
Steven Brod is the chief executive officer of Crystal Capital Partners.