Private Eyes Focusing On Hedge Fund Managers

Date: Monday, August 28, 2006

Better safe than sorry seems to be the guiding principle behind the ever-growing trend of investors hiring a private investigator to check out hedge funds and their managers. A New York Times article focused mainly on Randy Shain of New York-based First Advantage, which, according to the paper, has investigated more than 3,500 funds and 4,500 hedgies. Shain looks for all sorts of potentially incriminating details through court documents, news stories and even interviews with former employees, as well as such seemingly small bits of information, such as unpaid rent, false academic records and trivial lawsuits, all types of info a potential investor could use to help in decision-making. Most subjects come up clean, but occasionally Shain turns up information that sets off warning signals. That happened last year when he was hired to check out San Francisco-based Wood River Capital Management, which public records revealed had four state tax liens. Not a good sign – and one Shain’s client took seriously enough and avoided the heartache of dealing with what was yet to come to other existing investors-- losses as the result of a fraud as charged by the Securities and Exchange Commission. Investigations, which can take five weeks from beginning to finished report, cost between $2,500 to $50,000 depending on how thorough probe the customer orders.