Investors shift focus to social media analysis during hedge fund and private equity background investigations, says Corgentum survey
Almost two-thirds (62 per cent) of hedge fund and private equity investors have, within the last year, begun to search social media platforms such as Facebook, LinkedIn, Twitter and Instagram as part of the pre-investment background investigation process.
That’s according to a new investor and operational due diligence (ODD) analyst survey by Corgentum Consulting.
Searches were on both the social media activities of the fund management company and individual employees. Some 38 per cent of respondents stated that they uncovered at least one negative item during social media searches that was omitted from more traditional investigations. Additionally, 73 per cent of respondents stated that they would benefit from increasing the ongoing monitoring of fund managers social media on a post-investment basis.
Investors also felt that increased analysis of more traditional background investigation areas such as regulatory filings are increasingly producing diminishing marginal returns. While 84 per cent of investors stated they would like to be notified when a fund manager revises a filing such as the Securities and Exchange Form ADV, citing the sanitised nature of these filings, only 13 per cent said that the information in these updates were useful in making an initial or ongoing risk assessment. As a result, 48 per cent stated they found more benefit in increasing the scope of litigation and criminal searches instead.
"Investors increasingly want background investigations that dive deeper into the digital profiles of fund managers and their personnel. The focus is now on building a complete online and offline picture of the potential reputational risks involved with an investment. As a result, investors are increasingly integrating investigations into their larger due diligence and risk management frameworks." says Jason Scharfman (pictured), Managing Partner of Corgentum Consulting.