Quite recently, a former portfolio manager for a reputed global investment company was sentenced to four years of imprisonment for defrauding his investors and pocketing a whopping $80 million.
Another fund manager was arrested and charged by the Federal Bureau of Investigation for a $17 million Ponzi scheme.
Financial fraud is one of the most common frauds and yet, it is virtually undetectable. Tricksters come prepared for every challenge and change their moves according to the prevalent financial trends, making them even harder to track. We live in a time when it is seemingly impossible to trust anyone blindly, let alone someone who has the entire dossier of your financial records.
So what needs to be done? The answer is simple. Reassurance. screening. Certainty.
The means to achieve that is not complicated. Fund Manager Screening entails a complete and absolute background screening for your money man. It is levelled into three major steps.
- Basic Performance Screening
- Due Diligence Questionnaire
- Fund Manager Review
- Confidential Executive Report
Basic Performance Screening
With this step, the investor takes an overview of the Fund Managerâ€™s credentials, as well as that of his team or organisation, based on the preference of the investor. This is typically done through a third party investigative company (many background screening companies in India offer these specific services, Stern India included). At this stage, the Fund Mangerâ€™s educational and professional qualifications are scrutinised and a complete background screening is conducted.
This is done to get the idea of the capability of the Fund Manager to handle the investorâ€™s finances. The Fund Managers are also evaluated on the basis of their past managed portfolios and the volumes. It is closely what clients are served in the past and how well they were taken care of. Often large portfolios and big names impress investors enough to not delve into the depth. This may be a mistake as one should look not at the names but at the way the manager handled their funds.
It is important to ascertain the performance of the schemes promoted by the Fund Manager in terms of volatility, consistency, relative downside risk to the potential investors and benchmarks over a considerable time period (generally 5 years or more) to gain more understanding.
Due Diligence Questionnaire (DDQ)
Once the basic performance screening is underway, the Fund Manager is evaluated on the basis of the DDQ document. The DDQ is a comprehensive method of testing which looks into the individual/organisationâ€™s past records, teams, shareholding reports from other investors, PR & Media articles, interviews and whatever piece of information that can be sourced to add value.
Fund Manager Review
After thoroughly verifying the DDQ, the Fund Manager is interviewed in person or telephonically to attain more understanding and clarity on his functioning. This is also helpful in clearing any doubts or queries arisen from the DDQ. Furthermore, this step establishes a personal connection with the professional and his team.
Confidential Executive Screening
Once the Fund Manager clears all levels of scrutiny, he/she is recommended. In case of any red flags, they are further scrutinised and an expert team (from the third party) digs deep into the potential risks. All findings and analysis is then presented to the investor along with recommended strategies to proceed and suggestions to mitigate any apparent risk.
Though, not all red flags exposed in the procedure may make any consequence to the investor; however it does allow them to make informed decisions before committing to budgetary ventures. Alternatively, the third party could also recommend a list of approved Fund Managers with verified credentials and the list customised to the investorâ€™s needs and comfort.
There are a certain tell-tale signs or subtle indicators for a fraudulent scheme. The higher the promised return, the higher are the risks involved. If the manager claims â€œinsideâ€ or â€œsecretâ€ information, there is a good chance that it is a swindle scam. All offer documents must be read carefully to avoid rude shocks later on.
Before you invest your hard-earned money, invest in protecting your hard-earned money. Know your Fund Manager well enough to entrust him with your lifeâ€™s savings. But trust only after you verify.
As Benjamin Franklin aptly said, â€œAn investment in knowledge pays the best interest.â€