Private Equity Operational Due Diligence

Convicted fund manager frauds Nicholas Cosmo recently resurfaced in the news.

To refresh reader’s memories Cosmo was deemed by the media as Long Island’s “mini-Madoff“, due to the Ponzi like nature of his scheme and because Cosmo’s scheme was revealed shortly after Madoff’s.

It is estimated that Cosmo via his Agape World scheme lost more than $400 million in high-risk futures trading.

He gave an interview to CNBC’s American Greed where he claimed he was actually “helping people” as his Ponzi scheme was imploding. Specifically he says, “I was able to go through every single day because I thought I was helping people. That I was gonna be able to fix this problem that I created.”

Here is a news story about the interview:

Cosmo by the way had a previous felony conviction for fraud in 1999 for which he served 21 months in prison….

Cosmo is currently serving his 25 years jail sentence, which he thinks is too long for his crimes. In the interview, he also said he hopes to pay all of his victims out in the future. Cosmo is also banking on getting out early on good behavior.

A preview of the American Greed episode can be viewed here.

Corgentum’s Scharfman Discusses Private Equity Operational Due Diligence Trends With ValueWalk

May 13th, 2012 Posted in Corgentum Consulting, Private Equity Operational Due Diligence

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The state of private equity operational due diligence is constantly evolving. Corgentum Consulting Managing Partner Jason Scharfman was recently interviewed by ValueWalk to provide an overview of the growth of operational due diligence among Limited Partners and trends in the private equity industry.

In the interview, Corgentum Consulting Managing Partner Jason Scharfman also discusses how to LP’s can develop an operational due diligence plans as outlined in his new book, Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation and Documentation.

Additional topics covered in the interview include:

Evolving trends in GP operational best practices
Trends in operational due diligence for LP’s

The full interview can be read on the ValueWalk website here.

Corgentum Consulting, operational due diligence, Private Equity Operational Due Diligence

Buenrostro of Calpers being Sued by the SEC for Defrauding a Private Equity Firm

April 27th, 2012 Posted in Corgentum Consulting, Private Equity, Private Equity Operational Due Diligence

Federico R. Buenrostro, official at the California Public Employees’ Retirement System, has been sued by the SEC for “defrauding a private equity firm into paying $20 million to his close friend.” Buenrostro specifically pointed contracts to clients that were headed by his friend, which caused a conflict of interest according to the SEC.

Both Buenrostro and his friend, Alfred J. R. Villalobos, apparently conducted a plan to defraud Apollo Global Management, a private equity firm in New York City. The men carried out this strategy by giving Apollo fabricated documents that would lead Apollo to believe that the California Public Employees’ Retirement System had approved payments to Villalobos.

It seems that Apollo gave “at least $48 million to Villalobos to help it secure investments from Calpers,” according to the New York Times. Once the SEC became involved, only the two friends were held responsible for the corruption. They made up and fabricated documents for at least five different private equity investments.

Although Buenrostro denies any counts of misconduct, the case is still continuing after its’ initial breakthrough in 2009 when the pension fund asked a Washington D.C. law firm to investigate the possibility of a conflict of interest.

A case like this continues to prove the importance of operational due diligence in not only the hedge fund world, but the private equity realm, as well. Just as investors feel that it is important to perform operational due diligence on hedge funds, the same precautionary measures should be taken before investing in a private equity firm. Investors are quickly catching on to this trend and more and more operational due diligence is being performed on private equity firms in recent months.

Apollo Global Management, Corgentum Consulting, operational due diligence, operational risk, private equity

Corgentum’s Operational Due Diligence Webinar Series in the Hedge Fund Law Report

April 21st, 2012 Posted in Corgentum Consulting, Private Equity, Private Equity Operational Due Diligence, Webinar

Corgentum’s Consulting’s operational due diligence webinar series covers a wide variety of subjects related to performing operational due diligence on fund managers including private equity funds.

Operational Due Diligence Survival Kit for 2012: Essential skills for uncovering and evaluating operational risk in hedge funds, private equity and traditional funds, was the title of the first webinar in the series. This webinar outlined key trends for investors to consider when performing operational due diligence including those risks prevalent on private equity fund managers.

The Hedge Fund Law Report recently wrote an article outlining some key points covered in the Corgentum webinar. The article, “Corgentum Webinar Highlights Trends, Challenges and Best Practices for Hedge Fund Investors in Conducting Operational Due Diligence” can be read on the Hedge Fund Law Report
website (subscription required) in Vol. 5, No. 16 (Apr. 19, 2012).

A replay of the webinar can be found on the Videos section of Corgentum.com. .

For alerts about future Corgentum operational due diligence webinars, sign up on the Corgentum Consulting Contact page.

Corgentum Consulting, operational due diligence, private equity, Private Equity Operational Due Diligence

Corgentum Consulting Discusses New Private Equity Study with PE Manager

April 11th, 2012 Posted in Corgentum Consulting, Operational due diligence newsletter, Private Equity, Private Equity Operational Due Diligence

Jason Scharfman, Managing Partner of Corgentum Consulting recently spoke with PE Manager’s Nicholas Donato about Corgentum’s most recent private equity study, Private Equity Operational Due Diligence Trends – Navigating the Path Forward.

Mr. Scharfman was quoted in the article, PE Manager: LPs back office inspection set to rise. He said, “Institutional investors exhibit a post-Madoff type mentality where tougher questions are being asked around fund operations; the kicker being better relations for those GPs able to pass their expectations.”

This study showed that 78% of those who perform operational due diligence on hedge funds do not perform due diligence on private equity. 68% of those 78% plan to perform some form of operational due diligence in the upcoming year.

It is clear that even the most basic level of an operational due diligence review is becoming more common and essential within the private equity space.

To read the full PE Manager article, click here. (Subscription required)

Also, to read Corgentum’s private equity study, visit their website at www.Corgentum.com or click here.

Corgentum Consulting, limited partners, operational due diligence, PE Manager, private equity

Private Equity Operational Due Diligence Book Released By Corgentum Consulting Managing Partner

April 11th, 2012 Posted in Corgentum Consulting, Private Equity Operational Due Diligence

Link to this release on PRWeb.

Corgentum Consulting’s Managing Partner Authors Essential Book for Investors Titled, ‘Private Equity Operational Due Diligence’

Newly Released Handbook by Jason Scharfman is an Indispensable Guide for Assessing Essential Non-Investment Operational Risks and Mandatory Reading for Limited Partners

Managing Partner of operational due diligence consulting firm Corgentum Consulting and former senior team member at Morgan Stanley’s Graystone Research, Jason Scharfman, has authored a groundbreaking new book,

“Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation and Documentation”, John Wiley & Sons, Inc., 371 pp , which is available today.

“Private Equity Operational Due Diligence” , addresses the unique aspects and challenges associated with performing operational due diligence reviews on both private equity and real estate funds. This essential guide provides readers with the tools to develop a flexible comprehensive operational due diligence program based on the author’s real world experience.

Corgentum is the preeminent global provider of independent operational due diligence reviews for investors. Scharfman is also the author of “Hedge Fund Operational Due Diligence: Understanding the Risks”, John Wiley & Sons, Inc., 300 pp, which is considered to be at the forefront of operational due diligence texts.

“Investors now have a comprehensive guide to develop and implement a functional operational due diligence program for private equity and real estate funds,” said Scharfman. “The techniques outlined in this book will allow limited partners to avoid risky funds and make better investment decisions.”

The 12 chapters of the book cover areas including techniques for analyzing private equity fund legal documents and financial statements, as well as methods for evaluating operational risks concerning valuation methodologies, pricing documentation and illiquidity concerns. The book is filled with case studies in operational fraud and other examples to help equip investors with the tools to avoid unnecessary operational risks and fraud. The book also outlines techniques for limited partners to incorporate operational due diligence into their private equity asset allocation and portfolio construction processes.

“Scharfman provides helpful insight into this emerging area of private equity risk,” said Francis X. Frecentese, Managing Director, Global Head of Alternative Investments, Citi Private Bank. “His guide offers limited partners the potential to efficiently identify and evaluate private equity operational issues and avoid unnecessary risk. Similarly, it offers general partners guidance as to best practices in light of institutional investors’ increasing demand to institutional-quality infrastructure and enhanced transparency.”

Additional topics covered include:

Private equity fund advisory boards
Valuation techniques, methodologies and standards
Operational due diligence concerns specific to real estate funds
Core issues to consider when beginning an operational due diligence review
Advanced operational due diligence techniques when conducting an expanded analysis

A companion Website to the book includes sample checklists, templates, spreadsheets, and links to laws and regulations referenced in the book.

Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation and Documentation is available for purchase via Amazon.com.

About Corgentum Consulting:

Corgentum Consulting is a specialist consulting firm that provides investors with the industry’s most comprehensive and in-depth operational due diligence reviews. Corgentum partners with private equity and hedge fund investors, including fund of funds, pensions, endowments, investment banks, investment consultants, ultra-high net worth individuals and family offices to improve upon the efficiency and effectiveness of the operational due diligence process. The firm’s proprietary due diligence methodologies and innovative original research allows their clients to continually manage and mitigate their operational risk exposures. Corgentum’s sole focus on operational due diligence, veteran experience, innovative original research and fundamental bottom up approach to due diligence allows the firm to ensure that its clients avoid unnecessary operational risks. Corgentum is headquartered at 26 Journal Square, Suite 1005, in Jersey City, New Jersey, 07306. Phone 201-360-2430. More information is available at
http://www.corgentum.com.

About Jason Scharfman:

Jason Scharfman is the Managing Partner of Corgentum Consulting. He is recognized as one of the world’s leading experts in the field of private equity and hedge fund operational due diligence. Before founding Corgentum, Scharfman held positions focused on due diligence and risk management at Morgan Stanley, Lazard Asset Management, SPARX Investments and Research, and Thomson Financial. He has consulted with the U.S. House Judiciary Committee on the subject of hedge fund regulation. Additionally, he has provided training to financial regulators on the subject of hedge fund due diligence.

Corgentum Consulting, operational due diligence, Private Equity Operational Due Diligence

Corgentum Featured in Opalesque Article About the Importance of Private Equity Operational Due Diligence

April 9th, 2012 Posted in Corgentum Consulting, Private Equity, Private Equity Operational Due Diligence

Click here to reserve your copy of Private Equity Operational Due Diligence.

Corgentum Consulting highlights the need for private equity operational due diligence with statistical data based on approximately 150 Limited Partners surveyed in an Opalesque article, “Opalesque Exclusive: Due Diligence consulting firm calls for more checks on private equity funds, not just hedge funds,” written by Benedicte Gravrand.

Corgentum’s study shows that out of all Limited Partners surveyed, 87% of investors perform some sort of operational due diligence. However, only 24% use operational due diligence consultants. This means that 62% of the 87% who perform due diligence, use internal resources. Often times employees who are performing operational due diligence internally, have other obligations, making operational due diligence far from their primary job.

This could potentially create a problem when it comes to the important minute details. There are so many pieces to an operational due diligence review; it is easy to let things fall between the cracks if you are not paying close attention.

This private equity study also shows that investors feel that they are at higher risk when investing in hedge funds as opposed to private equity funds. In fact, 74% of investors say that they perform operational due diligence on hedge funds, but not private equity funds.

Managing Partner of Corgentum, Jason Scharfman, was quoted in the article saying, “This study shows that private equity investors have not yet moved beyond Madoff, and are still lagging behind their hedge fund counterparts in the resources they are dedicated towards performing operational due diligence.”

In light of this new found research, Jason Scharfman will release his newest book, Private Equity Operational Due Diligence: Tools for Evaluating Liquidity, Valuation and Documentation (Wiley & Sons) on April 10, 2012.

Also authored by Jason Scharfman, Hedge Fund Operational Due Diligence: Evaluating the Risks (Wiley & Sons).

Click here for the full Opalesque article (subscription required).

Corgentum Consulting, hedge funds, limited partners, operational risk, private equity, private equity operaitonal due diligence

Corgentum Discusses Operational Due Diligence in Waters Technology Piece, “Undue Diligence”

March 28th, 2012 Posted in Corgentum Consulting, Due Diligence News, Private Equity, Private Equity Operational Due Diligence

Corgentum Consulting has been featured in an article for Waters Technology entitled, “Undue Diligence”, written by Anthony Malakian. This piece talks about the importance of operational due diligence. Malakian points out that when operational due diligence does not occur, situations like AIJ or the recent, entirely made-up fund, Market Neutral Trading can happen, causing investors to lose millions of dollars.

Mr. Scharfman is quoted in the piece explaining how Japan’s regulatory structure is a bit behind the United States and Europe.

“The Securities and Exchange Surveillance Commission (SESC) hasn’t accused AIJ of any wrongdoing, but that will change if it’s proven that AIJ hid funds overseas in the Cayman Islands. And it should be noted that Japan’s regulatory structure is only now catching up to those of the US and Europe.”

Mr. Scharfman also says:

“Japanese investors, culturally, have been less inclined to put the screws to fund managers,” he says. “In other regions, post-Madoff, investors have realized that they have to look past any cultural hang-ups or not wanting to embarrass somebody or not be forward and ask certain questions. Japan has been behind the curve a little bit and they’re only now catching up.”

This article also raises other due diligence issues pertaining to technology. Now, more than ever, investors are looking for specific documents from fund managers as a means to diving deep on the due diligence process. Mr. Scharfman was also quoted saying, “People are struggling with what to do with all the documents they receive when conducting due diligence and then how they analyze those documents. The solution will come down to how to organize and mine data that is generated in the due diligence process.”

To read the entire article, click here (subscription required).

AIJ, Corgentum Consulting, fund of fund, hedge funds, operational due diligence, private equity, Waters Technology

Corgentum’s Scharfman Discusses Due Diligence Techniques for Success on TabbForum

March 27th, 2012 Posted in Corgentum Consulting, Due Diligence News, Private Equity, Private Equity Operational Due Diligence

lCorgentum Consulting’s, Jason Scharfman’s article, “Due Diligence Techniques for Success: Why Fund Managers Try to Manipulate Due Diligence,“ was featured on TabbForum, a news and opinion hub for the financial industry.

In this featured piece, Mr.Scharfman talks about the importance of transparency between fund managers and clients. He explains how in situations like the AIJ scandal, fund managers would not even allow investors to perform any type of due diligence and that this is a red flag for investors.

Often, investors who are new to the due diligence process are hesitant to ask tough questions of the fund managers, however they should take control of the due diligence process. The goal of due diligence is to avoid risk. By performing due diligence correctly, investors can insure that they are allocating their investments with the right manager.

To read the full article click here (subscription required).