Tough Minded Investment Manager Analysis

Kroll, a subsidiary of March & McLennan, has just published its annual Global Fraud Report, which is based on a survey of 892 Senior Executives, of which 18 were in the Financial Services industry.  According to Kroll, “Eighty-one percent of firms report that their exposure to corporate fraud has grown.”  Considering the number of new entrants we have in the hedge fund and alternative investment industries and the lack of seriousness with which we take these problems, I see no reason to believe our own percentages are not higher.

Again, according to Kroll, the respondents say that, “The most frequent cause of this increased exposure is high staff turnover, which is cited by 32% of the respondents.  Close behind are complex IT arrangements (31%), entry into new markets (28%) and increased collaboration between firms (26%)—all of which are factors that are closely tied with modern business practice.”  Kroll does not provide specific percentages for the hedge fund and alternative investments industry, unfortunately.  But all of these factors are common to our industries.  Kroll is headquartered in New York, and claims expertise in fraud intelligence and investigations.  You can download their report from here.

Not incidentally, I owe my knowledge of this report to Chris Addy of http://www.castlehallalternatives.com. Mr. Addy covers hedge fund and alternative industry operational risk, as I do; only he knows a lot more about it than I do.