Comments on: Vast Under-Investment in Due Diligence

By: bcasey

bcasey — Mon, 22 Dec 2008 03:36:19 +0000

Or maybe bigger bottom feeders would be more apt?

By: bcasey

bcasey — Mon, 22 Dec 2008 03:29:53 +0000

Phb I love the toothpaste analogy.

Due Diligence omfg where do you get these terms?

A whole heck of a lot have gotten jacked on this one, But guess what, it just goes to show, New York is a whole heck of a lot like Detroit, just New York has more bottom feeders…

By: Scott F

Scott F — Sun, 21 Dec 2008 11:27:53 +0000

Having been involved with due diligence, I can tell you why.

- If they want the deal done, dd is cost.
- If they don’t want the deal done, it only takes one or two people to find the way to kill it.
- If things go wrong, it is the unsecured partners, read retail investors, who take the bath.

SED (Squid Est Demonstratum – or you’re fried.)

By: TO

TO — Sat, 20 Dec 2008 02:42:07 +0000

Work with one of the three largest private wealth managers in the business in this exact field….

The analysis done on HF, HFOF, Real Estate, and PE is extremely buttoned up. Very thorough – I’m not just saying this bec. I work there. Considerable time spent on background checks, hours spent onsite with numerous firm personnel, balance sheets scrutinized, separate people doing operational DD versus investment DD. It can take months to have a manager approved, wherein lies the problem – more in a bit. Various committees filled with risk and compliance must sign off on any new manager. The level of quantitative “econometric” analysis done is limited – build all the models you want, the returns are still in the past. 80-90% of the work is qualitative. While there have been no major problems – some minimal exposure in FOHF to Madoff and a few prior implosions – Sowood is one that comes to mind, regardless very minimal. The real conflict lies with advisors demanding more products, and demanding them quickly, with threats to leave the firm attached….which has the potential to lead to missing something……

By: usphoenix

usphoenix — Sat, 20 Dec 2008 02:10:08 +0000

What’s the old saying, “you can’t legislate values”? Due diligence has to be an internal thing, and it has to be performed as a value by the deal-maker, not the auditor. Internal auditor’s get blown off regularly. Legal? Hey, who wants to squirrel a sweet deal? Or leave a bonus on the table?

The situation is incredibly simple. Greed trumped trust and integrity. When you can bank $20 mil in one year, who cares about trust? Unless you’re trying to compete with Bill or Warren? Or $20 mil isn’t enough to support your lifestyle for as long as you plan to live.

Exactly how many have gone to jail that should have?

The social fracturing and value deterioration is just peaking, that’s all.

The fat cats walk, sign off, and leave it to the feds (us) to fund. LOL.

By: David Merkel

David Merkel — Fri, 19 Dec 2008 21:39:57 +0000

@Manwich — I agree about the qualitative part. I ferreted out some bad managers that had good track records, and that could only be done by qualitative work. Most of my analyses were qualitatively-driven, but had quantitative work as well.

By: Todd

Todd — Fri, 19 Dec 2008 18:07:56 +0000

@Fred C Dobbs
I for one will keep wearing my Nihilist glasses and keep doing what I’ve always done. Besides I like the color black. I hear swans come in that color too.

By: phb

phb — Fri, 19 Dec 2008 18:01:36 +0000

Try this on for size – the investing public has lost their confidence in the public market system (ie exchanges, funds, brokerage houses, banks, etc. ad nausum) therefore they search for alternatives to “the system” and seek out private investment opportunities. Barry makes reference that there are more Hedge Funds than publicly traded stocks, this is no coincident. We are at a point of inflection in history with change underway. Either proper regulation to insure investor confidence is restored, or we move on to a new form of “capitalism” that has yet to be defined. I personally believe that the toothpaste has been violently been squeezed from the tube and therefore we are moving to a new world.

By: Fred C Dobbs

Fred C Dobbs — Fri, 19 Dec 2008 17:10:32 +0000

I fail to see why you were stunned. Is it because you see through rose-colored glass? It is not possible, let alone practical, for big, central government to absolutely protect you from becoming a crime victim. It is unable to detect all criminal intentions in advance. It has to wait until the criminal identifies him/herself by taking some criminal action. At a minimum, it would take more than 4 people taking turns working 40 hour weeks to guard you 24×7 standing at your side. In other words, 80% of society would be employed protecting 20%, while being unprotected themselves. Who would feed, clothe, and house both the protected and unprotected? It is silly to suppose any government is going to protect you absolutely from being the victim of a physical crime. That is why there is a 2d Amendment. We must be prepared to protect ourselves. It is the same with non-physical crime. People lie all the time. That is why the saying ‘Caveat Emptor’ (Buyer Beware) is ancient, and not something new. And when they lie to gain a financial advantage, they commit the crime of fraud. Reagan is credited with saying something to the effect that is is good to trust, but it is better to verify. Investment advisors deal directly with people with surplus money, money they don’t need to pay bills, and can be ‘invested’ (gambled). These monied people didn’t get their hands on this surplus money from being lazy, and dumb, but through the use of effort and intellect. What makes them so special that they deserve special government protection? Why should government assume the responsibility for performing due diligence for these active, smart, successful monied people? Why should it be free, at taxpayer expense? And should government make a mistake, why should a jury award these people money collected from taxpayers? If they could not or did not verify, and proceeded to gamble with Madoff, they deserve to loose their money. The gamble includes the character of the person with whom you entrust the money, that he will honestly place your bet. There is no reason to suppose that the money they invested would not have been lost in the market had they given it to someone else who was honest but merely stupid, rather than crooked. If one wants to protect oneself against financial crime (dishonesty), one needs to verify first that one’s funds are being entrusted to a solvent defendant. One should also periodically verify the funds are still with a solvent defendant. The easiest way to verify this is to demand return of a large portion of your investment from time to time. There is no evidence that any of those who invested with Maloof relied on actual knowledge of what the SEC did or did not do. Those who invested in Madoff deserve nothing, and have no right to blame government, since they failed to exercise common sense.

By: Moss

Moss — Fri, 19 Dec 2008 17:05:39 +0000

Hedge Funds, Mutual Fund Companies, Wall Street firms and the like are compensation conduits for the principles. If one thing has been unearthed by this meltdown it is that the individuals monetary interests trump any other concern. What was the name of that book? ‘Where are the Customers boats’? I am utterly disgusted by the depth and width of the corruption that has surprised and astonished the unsuspecting. I for one have always been a skeptic of the so called ‘professionals’ associated with ANY financial institution.