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FRM Part II · FRM Exam Part II · Performing Due Diligence on Specific Managers and Funds

A long/short equity manager reports a 5-year annualized return of 11% with a monthly-return track record that began after the manager left a multi-strategy platform. The manager says the prior platform record cannot be shared. What is the most important due diligence concern with relying on the new record alone?

The key concern is that the short record may not show the manager's skill across differing market environments, and prior results cannot be attributed to the individual. Due diligence should seek attributable earlier performance, references and decision records rather than relying only on the new fund's history.

  1. AThe record covers too many market regimes to be meaningful
  2. BThe record may not reflect the manager's skill across different environments or demonstrate attribution of past results to the managerCorrect
  3. CAnnualized returns cannot be compared across managers
  4. DShort positions make any track record unreliable

Explanation

A track record at a new firm can omit prior experience and fails to show how the manager performed through varied conditions, or whether earlier success was attributable to the individual rather than the platform. Seeking attributable prior performance, references and decision records is the right response. Option A is backwards: more regimes aids evaluation.

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