Preqin, the multi-national data and consulting firm, in its newly released 2013 “Global Alternatives Report,” offers a good deal of news about asset allocation, especially in connection with private equity on the one hand, hedge funds on the other. It also offers a list of questions for investors doing their due diligence – questions proposed specifically in a PE context but many of which will be appropriate in either context.
The list comes courtesy of a contribution to the report from Stephen Cravers, the head of fund analytics for Cogent Partners. The first round of questions he proposes includes these:
- What kinds of companies have you bought and sold, and at what multiples?
- What happened to the acquired companies fundamentals when you did so?
- [If the PE fund has strong performance numbers], are they founded upon one recent home run, or a consistent record of well-hit singles and doubles?
- What is the process by which you generate your investment ideas?
Cravers then tells investors they should assimilate all the data they receive as a consequence of asking such questions before the next round. This next round involves asking the PE for investment memos. Also:
- Which firms do you see as your closest competitors?
- How many of your limiting partners do you expect will re-up?
- Does the GP have skin in the game?
- Are there any side letters that put other investors on a footing better than that available to me?
Also, he says, interview portfolio company executives, intermediaries who were involved in recent transactions involving this PE fund, and current or former limited partners.