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

Which activity is most appropriate as part of the ongoing monitoring phase after an allocator has invested in a hedge fund?

Ongoing monitoring should track changes in key personnel, assets under management, exposures, liquidity terms and any style drift relative to what was originally underwritten. Due diligence does not end at investment; continuous comparison with initial findings helps detect emerging problems early.

  1. AStopping all contact with the manager to preserve independence
  2. BTracking changes in key personnel, assets under management, exposures, liquidity terms and style drift against the original due diligence findingsCorrect
  3. CRe-running only the legal review of the offering document each year
  4. DRelying solely on the manager's marketing letters for updates

Explanation

Due diligence is continuous. Monitoring compares current staffing, size, positions, liquidity and strategy with what was underwritten to detect style drift or deteriorating controls. Marketing letters or legal-only reviews are insufficient.

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