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

During due diligence, an allocator discovers that a manager's Form ADV and its CV disagree on the dates and reasons for departure from a prior employer, and that a background check shows an undisclosed regulatory settlement. What is the most appropriate response?

The allocator should treat the inconsistencies and undisclosed settlement as a serious integrity red flag, demand explanations, verify them independently and escalate before investing. Strong past returns cannot compensate for doubts about honesty, and simple CV corrections or smaller sizing do not resolve them.

  1. ADisregard the discrepancies if the fund's track record is strong
  2. BTreat the inconsistencies as a serious integrity red flag, seek explanation and independent corroboration, and escalate before investingCorrect
  3. CAsk the manager to correct the CV and proceed with the investment
  4. DReduce the intended allocation slightly and continue

Explanation

Misstated history and undisclosed regulatory matters call the manager's honesty into question, which performance cannot offset. The allocator should require explanation, verify independently and escalate to the investment committee. Simply letting the manager fix the CV or trimming size does not resolve the integrity concern.

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