Evaluation of a potential investment in a hedge fund

by scott pickard

I would ask to see a 1-paragraph synopsis on ALL of their equity positions, not just five. If the stocks they are selecting intuitively make sense to you, then that’s a good sign. Of the five equity positions they profiled, I liked their explanations and logic behind their positions. It was easy to understand and made sense to me.

Arbitrage trading is simply mathematical gaming and making money for money’s sake. It has nothing to do with investing in the value of a company’s technology and products. If they’re only doing a small percentage of trades using an arbitrage strategy, it may not be a big issue.

Can they show a graph of the growth of the total $size of fund?

Have they been successful in building their base of investors? What is the current number of investors? Have any investors dropped out? Why?

I would ask for a few callable references so that you could get a current investor perspective on SC’s performance and the investors’ perspective on the quality of reporting and customer service. I would also ask to see a sample quarterly report.

The 2% management fee + 20% performance fee is standard. You need to make sure that the performance fee only applies to the net profits, i.e., profits after losses in previous years have been recovered.

It is also reasonable to require that the performance fees include a “hurdle,” so that a fee is only paid on the fund’s performance in excess of a benchmark rate or a fixed percentage. That is to say, the manager is only rewarded if the fund generates returns in excess of the returns you would’ve received if you had invested your money elsewhere.

What protections does SC provide in the event of fraud or breach of any of the provisions of the Subscription Agreement? I see none. There should be a reciprocal indemnification by SC to the one you would be expected to sign to in section D of the Subscription Agreement.

The Memorandum indicates that you can liquidate and withdraw your account with a 90-day notice, but the Subscription Agreement does not mention this.

In section E, “Power of Attorney,” the LLC should be required to notify investor of any substantive changes made to the LLC on investor’s behalf.

IN SUMMARY:

  • I would not make any kind of decision on this investment until you receive good answers to these due diligence questions and issues.
  • The documentation is very sloppy, and that is concerning. I wouldn’t sign the Subscription Agreement until some of these errors are corrected.
  • If there is one SC, there are hundreds if not thousands to choose from. By comparison to the pool of equivalent investment funds you could choose from, they are very inexperienced. And with inexperience comes higher risk.
Personal Time Investing Buy the rumor, sell the news. But, are you listening to the music or the noise? in general: alternative investments: secondmarket | consumer investing behavior: dcisions | earnings whispers: www.whispernumber.com | books: The Only Three Questions That Count Fisher | gamify: kapitall | idea investing: motifinvesting | impact investing: Global Impact Investing Network GIIN | IPOs: www.hoovers.com/global/ipoc/index.xhtml, http://biz.yahoo.com/reports/ipo.html | Morningstar: www.morningstar.com | Motley Fool: www.fool.com | MSN Investor: http://moneycentral.msn.com | regulation: FINRA | short selling: dangerous | Silicon Investor: www.siliconinvestor.com | startups: DataFox | The Street: www.thestreet.com brokers: E*Trade: https://us.etrade.com | Fidelity: https://www.fidelity.com | kapitall | Schwab: https://www.schwab.com | TD Ameritrade: www.tdameritrade.com | thinkorswim

Historically only 18% of fund managers beat the S&P500 index on a consistent basis.

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Rule of Law vs. Lawlessness

by scott pickard

Population Immigration Should we keep people out, or incentivize companies to invest in agricultural and manufacturing facilities that create good jobs in Mexico? sp in general: agricultural labor: Mexico | data: Migration Policy Institute | green card: roadmap | immigration reform: Obama’s 2014 Speech | management system: www.immigrationtracker.com | trains: The Beast integration: community-building: shelbyvillemultimedia | education: Hmong Peace Academy > Education books, essays, films: Borderland NPR | Of Mice and Men Steinbeck | Sin Nombre | The Arrival Tan | The Real Story of the Superheroes Pinzón | Welcome | Welcome to Shelbyville Snyder

There are societal issues so complex and divisive among us that it is hard to know what is the right thing to do (immigration, abortion, for example). One way to approach these issues is to build our decisions upon principles that can be applied consistently:

  • If there is a law in place, then enforce the law.
  • Consistently follow through with accountability as defined by the law (this always seems to be the hardest part).
  • If it is a bad law or a law that does not match our current set of principles and what we want to do, then change the law accordingly.
  • In the meantime, don’t rationalize lawlessness as a solution because lawlessness breeds more lawlessness which undermines our framework for a safe and civil society.

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Finding a neutral party to facilitate a merger of two businesses

by scott pickard

I wanted to run something by you, which may or may not be something you want to do or you may not have the time. But I thought of you immediately and think that you are well suited to this task.

I have a very good long-term friend who recently asked for my help to identify someone who could facilitate a negotiation between my friend and another owner with the goal of merging their two respective businesses. They have in effect reached a “gentleman’s agreement” to merge the businesses after having teamed together on some research proposals for the last two years and been very successful doing so. They’ve been talking about this for the last two years. Now they just need a neutral facilitator who can help them close in on the best plan and legal framework for merging the two businesses into one, and that’s where you would come in.

facilitate

I can give you a few specifics:

  • These two businesses are both involved in highway pavement engineering and research.
  • One is located in Portland Oregon; and the other is located in Tampa Florida.
  • The two companies are of the same approximate size, each generating $800K – $1M per year in revenues and they are both profitable.
  • The two owners feel that the companies complement each other perfectly.
  • Both the owners and staffs are compatible and have already worked together.
  • The two owners are certainly prepared to pay the going rate for professional services of this kind.
  • I don’t think they are looking for any further capitalization, but I do know that they want to grow the merged business.

These two Owner/CEOs are looking for a trusted third-party to help them talk through the process and reach a consensus on the best way to merge their two companies from several perspectives: legal, operational, strategic, and financial/tax.

If you are willing to consider this, I would like to suggest your name because I believe you have the integrity, personality, insight, and overall business background to help them pull these pieces together and agree on a plan of action so that they can go to their respective attorneys and say, “Here’s what we want to do, draft an agreement that we can sign so we can get started.”

So, what do you think? I’ll give you a call and see if this is something you’d like to take on.

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Due Diligence List

Due Diligence List has over 2,000 good due diligence questions organized under fourteen major functional areas of the business.  There is also a sister book, Leaders Ask Good Questions, which has the same questions organized alphabetically.

Memorandum of Understanding (MOU)

by Scott Pickard

People still like to do business on the basis of good faith and a handshake.  The Memorandum of Understanding (MOU) can put in writing what you want to do based on common sense and plain english.  It should be one page, take you less than 30 minutes to write, and you’re off and running.

Methods of Business Organization Legal Information and Compliance Antitrust | Arbitration | Competition | Compliance to Regulations | Content Security | Contract Signing Authority | Cybersecurity | DIY | Employees equal opportunity | Financial | Government Contract Administration | Intellectual Property | Knowledge crowd | Law | Lawsuits | Methods of Business Organization | Network | Nonprofit Organization | North American Free Trade Agreement | Outsourcing | Purchasing | Recycling | Regulations | Risk Management | Sarbanes-Oxley Act | Taxes | Truth-In-Advertising | Water Are backups of all key documents in a secured, disaster-proof location?  Are the board minutes up-to-date and secure?  questions for lawyer(s): What is your evaluation of management?  Is management listening to your best advice?  What has been the trend in outside attorney fees for the last three years as a percentage of revenue?  Is it reasonable?  Is the company's cost for carrying inside counsel resources reasonable? environmental regulations: Have any environmental regulation violations or warnings been given to the company?  What actions are being taken to resolve the problem(s)? The cost?  Is the company a candidate for accreditation under the ISO 14000 standards?  Is the air quality odotech of the plant internally and externally in compliance with relevant environmental laws?  What percentage of the company's revenues is spent to maintain air quality to mandated levels?  Is it reasonable or getting out of control? | carbon monoxide detection: www.carbon-monoxide-poisoning.com/symptoms.html | EPA Regulations: http://www.epa.gov | smartphone sensor in general: ABA LawLink: www.abanet.org/tech/ltrc/lawlink/home.html | corporate counsel: law | create documents: www.legalzoom.com | digital signatures: echosign | enterprise document management: intralinks |  FindLaw: www.findlaw.com | Hieros Gamos: www.hg.org | Lawyer Locator: http://lawyers.martindale.com | outsourcing: www.pangea3.com, www.unitedlex.com | SEC : www.seclaw.com, http://securities.stanford.edu class actions | spend management: www.datacert.com Federal/State Codes: Code of Federal Regulations: www.access.gpo.gov/nara/cfr/cfr-table-search.html | State Code: www.findlaw.com/casecode/#statelaw | Tax Code | US Code: www.law.cornell.edu/uscode regulatory agencies: Has the company ever been a defendant in any enforcement proceedings by regulatory agencies?  Any actions threatened or pending?  Is the company in compliance with all federal, state and local laws?  What are the troublesome occupational hazards for the company?  What has the company's record been with past OSHA inspections? Any fines?  Has the company corrected all violations? waste production and disposal: How much and what kinds of scrap or waste are generated by the production process?  How is waste/scrap disposed?  Is the company in compliance with environment control regulations for each type of waste or scrap byproduct?  Are there any major capital requirements needed in the future to maintain compliance? Has the company allocated funds in the long-term financial plan?  Has the company ever had an industrial spill?  Does the company carry sufficient catastrophe insurance? | residential: thebagster |  medical wastes: Stericycle | optimization of pickup: enevo | solar compactor: godawn | treatment and recycle: newearthsolutions

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CitizenFour

Political concepts, ideologies, and problems Anarchism, Chaos, Liberty, Radicalism, Rebellion, Revolution You say you want a revolution Well, you know We all want to change the world Beatles  search in general: The right to alter or abolish government is the ultimate expression of the people’s sovereignty. | about | Arab Spring: Emel Mathlouthi was voice of Tunisian revolution, timeline | cabal | Che Guevera | coup: Coup d'état, Egypt | people’s mic | separatism | vandalism anarchists, pirates, radicals, separatists, terrorists: Does art inspire anti-social behavior, or does it just describe it? | Al-Qaeda: Inspire 10 | Black Bloc | Catalonia | fifth column: definition | gangs | Greece: Golden Dawn neo-nazi, fascist | Lord’s Resistance Army | Muslim Brotherhood: A Day of Anger | Nigeria: Boko Haram | pirates: Somali | Russia/Moscow: Pussy Riot | Sex Pistols | Syria: Islamic State in Iraq and Syria ISIS | Taliban | Ukraine anti: consumerism: freeganism | establishment: Pete Seger dictatorships: Dictactors have weaknesses. | From Dictatorship to Democracy by Gene Sharp | North Korea | Uzbekistan: Gulnara Karimova revolution: pen is mightier than the sword: Diaries of an Unfinished Revolution Cassel | Hong Kong: Umbrella Revolution self-defense, self-preservation, self-rule: rule thyself: autarchy | Constituional right to bear arms transparency: FOIA: FOIA Machine |in general: cryptome, publicintelligence, WikiLeaks | journalists: The International Consortium of Investigative Journalists | whistleblowers: CitizenFour Poitras | Edward Snowden books, movies, music, tv: Captain Phillips Greengrass | Fight Club Palahniuk | From Dictatorship to Democracy Sharp | Les Miserables 19th century France | Revolution Brand | Revolution tv miniseries | Rules for Radicals Alinsky | Savage Continent chaos | The Ends of the Earth Kaplan | The Fifth Column and the First Forty-Nine Stories Hemingway | The Net Delusion Morozov | Time for Outrage: Indignez-vous! Hessel | V for Vendetta Moore Cybersecurity | Extreme | Social Radar | SW Asia | Religion | World

Thinking differently about illegal immigration

Population Immigration  search in general: agricultural labor: Mexico | community-building: shelbyvillemultimedia | data: Migration Policy Institute | green card: roadmap | management system: www.immigrationtracker.com books, essays, films: Borderland NPR | Of Mice and Men Steinbeck | The Arrival Tan | The Real Story of the Superheroes Pinzón | Welcome | Welcome to Shelbyville Snyder Agriculture | Data | Economic | Education | Employees | HR | Issues | JobsInstead of spending billions on infrastructure to (a) keep people out, (b) catch them, (c) jail them, and (d) return them, our government should reallocate those billions towards incentivizing U.S. companies to invest in Mexico-based agricultural and manufacturing facilities that create good jobs in Mexico that bring profits back to America.

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Mary Barra vs the Dysfunctional GM Culture

by Scott Pickard

Sarah, very interesting article and your recommendations are well-intentioned and truthful, but, I give them a slim chance of making a dent in the sprawling, dense and calcified GM cultural fabric which has deeply embedded within it the familiar dysfunctional qualities of a massive bureaucratic organization. In this regard, human nature repeats itself with disappointing consistency. In very large corporations, universities, government units, and military, this is what we face and deal with every day.

It confirms to me that GM was probably not “too big to fail.” Failure could have been the disruptive event necessary to purge the dysfunction and clear a path for renewal — a “corporate reboot” if you will.  Bankruptcy would have provided the platform and mandate for sweeping away all the dead wood, political toxicity, cronyism, greed, and staleness that builds up over time inside society’s largest institutions.

Law Crime, Corruption, Power, Violence How can we rethink security beyond mass incarceration? How can transnational organized crime networks be stopped? Is there anything goingon in the company that can result in an Enron-style financial collapse? (a) self-dealing; (b) undisclosed insider trading; (c) unauthorized compensation; (d) debt-loaded limited partnerships in general: archive: Crime Library | biology: The Anatomy of Violence Raine | city shootings: ceasefirechicago, Cradle-to-Grave Program | cybersecurity: antiphishing, AccessData, onguardonline | depravity: Crime and Punishment Dostoyevsky | gangs: Home Boy Industries, knockout game | gun violence/control: gun-rights lobby | insider trading: Rajaratnam | jewel thieves: Pink Panthers | kidnapping | organized crime: Hell’s Angels | policing software: Mark43 | research: Crime Lab | school shootings | sex offenders: Miracle Village | TV shows: http://en.wikipedia.org/wiki/List_of_police_television_dramas, Orange is the New Black prison | white collar: nw3c insider trading: Has the company made a reasonable effort to make all insiders (executives, employees, directors) aware of the insider trading rules? | documentary: To Catch a Trader | SEC Filings: www.10kwizard.com power: How is power consolidated in the company?  Are directors careful to not get involved in the internal politics of the company? | greed:  about, The Wolf of Wall Street vigilante: about | Bruce Willis | fiction/comics: batman, robin hood, superman | Mexico: drug cartels | Paul Newman | Death Wish | Steven Sigal | Three Days of the Condor weapons: bombs: toothpaste books/movies: Crime and Punishment Dostoyevsky | Inside Job | Syndromes of Corruption: Wealth, Power, and Democracy Johnston | The Onion Field Wambaugh Decisions | Issues | Emotions | Ethics | Smart Grid | War | Survival | Sports

Had that happened, then “creating opportunities for collegiality to take root….encouraging questions that create context….. helping employees to feel safe by reshaping the work environment…,” might have been introduced into a clean, fear-free, accepting cultural landscape.

But, it didn’t happen, so best of luck to Mary Barra.

Don’t get me wrong, I’m all-in for capitalism with its faults, but we all know the aggressive pursuit of profit in BIG BUSINESS (with power and greed lurking in the headquarters’ shadows) has its dark side.

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