Plenty Of Hedge Fund Work For Private Eyes

by Carla Johnson, Investors Offshore, London

06 June 2002

The dramatic expansion of the hedge fund industry in the last few years has meant unprecedented demand for hedge fund managers, and plenty of business for private investigators who are increasingly being hired by canny investors to check out prospective managers before entrusting them with millions of dollars.

According to an article by Svea Herbst-Bayliss carried on Reuters, it's far from unusual to find discrepancies or outright lies on the resumes of applicant managers.

"Years ago, everyone was pretty much the same," says Randy Shain, a licensed private investigator whose firm BackTrack Reports checks managers' backgrounds.

"They all went to Harvard, worked at Goldman Sachs before moving on to Morgan Stanley, and then they started their own fund. Everyone knew everyone else. But now you have 10 times as many people in the industry, and we find about 20 percent of them lie on their resumes," he added.

Michael Berger, who last year admitted to looting $400 million from his Manhattan Investment Fund, is an example of someone who should probably never have been allowed near a hedge fund business if investors had properly checked him out - he had little or no relevant Wall Street experience.

The checking that's done, says the article, is quite basic, but simply going through a resume a checking everything, line by line, turns up a surprisingly large number of liars.

Randy Shain's searches usually take about three weeks. He says he starts by reading absolutely everything he can get his hands on, from published reports to information gleaned from ultra-sophisticated databases.

"We are not out here looking for terrorists," Shain said. "But if we find that someone promises to run a billion-dollar business, but his former colleagues say he is so abrasive that no one works with him for more than a few months, then that is useful information for our clients."

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