Stroz Friedberg was asked by an investor to do a background investigation in to a high profile hedge fund manager who had requested a $50 million increase in the amount of funds the investor had placed with him. The investor was concerned that the fund manager could not sustain the fund’s profitability and was wary of the opulent lifestyle which the fund manager flaunted in the public eye.
Obtaining information about hedge fund transactions is always difficult: fund managers have a reputation for being secretive and in many cases the funds operate from offshore tax havens where monetary transfers are nearly impossible to track. Even though these transaction characteristics posed challenges, Stroz Friedberg completed a detailed investigation of the fund manager’s business activities, lifestyle, and personal purchases. In a comprehensive report to the client-investor, we recommended that specific fund activities and the manager’s personal resources should be substantiated through in-depth questioning of the suspected manager. Stroz Friedberg provided a “Questioning Guide” to extract information about the source of funds used to finance the manager’s lifestyle. We further documented that his lavish living, which was out of line with known compensation levels or credit availability, included several very expensive items such as a private airplane, a helicopter, and several luxury cars and boats.
Within six months of the investigation, the hedge fund’s assets were being liquidated.