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

An allocator reviews a long/short equity manager's three-year track record showing an annualized return of 12% and no down months larger than 2%. The manager's fund began three years ago, but the manager previously ran the same strategy inside a larger multi-strategy firm. Which step is most appropriate when evaluating the track record?

The allocator should independently verify the prior-firm record, confirming the manager's actual role, decision authority and attribution of results. A track record is only informative if the manager truly generated it, so portability must be tested rather than assumed or ignored.

  1. AAccept the reported fund returns because audited statements are always sufficient
  2. BSeek to verify the prior-firm record independently, confirming the manager's actual role and the portfolio's attribution to themCorrect
  3. CDiscard the prior-firm record and evaluate only the fund's three years
  4. DExtend the record by assuming the earlier returns equal the strategy's index returns

Explanation

Portability of a track record depends on whether the manager was truly responsible for the decisions and results. Independent verification of role, authority, and attribution is the due diligence step. Ignoring prior history loses information, while accepting it unverified or substituting index returns is not due diligence.

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