The Depth of the Dive: Gauging the Scope and Scale of Due Diligence
Jason Scharfman, Managing Partner
Corgentum
June 2009
A depth gauge is a type of pressure gauge used by SCUBA divers to determine their equivalent depth in water. Divers utilise these gauges to, among other things, avoid such things as decompression sickness.
In the same way that the term due diligence does not have a universal meaning, particularly when applied to a hedge fund context, neither does the scope and comprehensiveness – the depth – of operational due diligence reviews.
In the post-Madoff environment it is no longer acceptable for a fund of hedge funds or any institution, which allocates to hedge funds, to simply claim that they have comprehensive investment and operational due diligence practices. These firms must be able to consistently demonstrate the depth and breadth of their due diligence.
Similarly, investors must be equipped to gauge the quality and effectiveness of this work. Below are some guidelines that both individual investors and professional hedge fund allocators can utilise in determining the scope and scale of their due diligence process.
