Take help of specialised firms to know the background of listed companies
As the stock market sets new records almost every other day, many India-focused hedge funds have turned cautious, rushing to investigators for reassurance on the money that they are investing here.These funds are seeking the services of specialised firms to know the background and additional details of several listed firms they could be investing in. Additionally, some hedge funds are also hiring analysts who go beyond the balance sheet and look for skeletons in the company’s cupboard, if any. At a time when their yields from India could be under pressure, they do not want to place bets purely on the basis of information that’s available in the public domain.
Industry trackers say that the techniques adopted by forensic experts could range from analysing company data to gathering details that could, at times, contradict public information released by the company.
In October this year, a US-based hedge fund was planning to hire specialised analysts or channel check analysts whose main job was to get “information that was not available in the public domain”.
The fund manager was learnt to have told the interviewees that their main job was to call and meet the vendors of listed companies.
“And find out if in the coming quarters, whether sales of a company correspond with what it has been claiming in the public domain,” the find manager told the interviewees.
Apart from recruiting in-house analysts, some funds are also rushing in to specialised firms for forensic accounting. “The background checks on listed firms are done to take a long, or short, call on that company. The use of forensic accounting by hedge funds is increasing as they do not want to go wrong on their initial bets on the Indian stock market,” said Ramesh K Vaidyanathan, managing partner, Advaya Legal, a boutique law firm based in Mumbai.
Industry trackers say that hedge funds have got curious about the Indian market in the past six-seven months. “After the general elections earlier this year, global hedge funds are showing increased interest in Indian capital markets. Gathering business and market intelligence help investors, including hedge funds, to assess risks and opportunities related to their target investments,” said Dhruv Phopha lia, managing director, India lead er, global forensics and disputes Alvarez and Marsal.
In a recent incident, a hedge fund after such an investigation discovered that an automobile company was misrepresenting data on some of its financial as sets. “The valuation of invento ries was lower than what was ac tually claimed as some of that (in ventory) was not usable in the com pany's new prod ucts. The hedge fund decided to go short on that stock,“ said a per son familiar with the development.
“We are seeing a lot of interest by hedge funds in Inmain concern is cor dia, but their main concern is corporate governance in some Indian companies. We are in touch with an American fund, which may enter India in the coming few months,“ said head of a forensic department in a corporate consultancy .
COMES AT A COST
The forensic analysis, or checking claims made by listed firms, comes at a cost. The in-house analysts recruited by hedge funds are paid . 18 lakh per year at least around ` On the other hand, a detailed but basic forensic analysis could cost anywhere around ` . 7.5 lakh. This cost compared with the bets, often running into millions of dollars, is a reasonable price to pay for taking the right call on an Indian stock., “The cost of such a background check would depend on the depth of information needed, purpose and , who is asking for the information.
Broadly, two levels of credible background checks are common -the first, intensive desktop-based checks, and second, elaborate field enquiries that use human source intelligence,“ said Jagvinder Brar, Partner, Forensic and Investiga tion, KPMG India. In most cases, funds make money by taking contrarian bets based on the financial and forensic analy sis. However, many US-based firms are treading cautiously in India. “After the 2009 hedge fund insider trading scam in the US that result ed in the indictment of prominent individuals of Indian origin, glob al hedge fund managers are extremely careful in the way they gather information of publicly traded companies. Using a re search-based methodology, busi ness intelligence helps in reveal ing facts on the ground about how a specific company or an industry operates,“ Dhruv added.
Industry watchers say that the rules of hedge funds are relative ly new to India. “Hedge funds have a small, but growing base in India. The country lacked clear rules and guidelines, and Sebi no. tified the Alternative Investment Funds (AIF) regulations only in 2012 to regulate hedge funds. Go ing ahead, we expect to see an in creased need for regulations and enforcement action regarding fi nancial instruments,“ Brar said.
SOURCE TOI
FOR SEARCH AND INSPECTION SERVICES CONTACT US
CONTACT GAURAV +919990694230
Industry trackers say that the techniques adopted by forensic experts could range from analysing company data to gathering details that could, at times, contradict public information released by the company.
In October this year, a US-based hedge fund was planning to hire specialised analysts or channel check analysts whose main job was to get “information that was not available in the public domain”.
The fund manager was learnt to have told the interviewees that their main job was to call and meet the vendors of listed companies.
“And find out if in the coming quarters, whether sales of a company correspond with what it has been claiming in the public domain,” the find manager told the interviewees.
Apart from recruiting in-house analysts, some funds are also rushing in to specialised firms for forensic accounting. “The background checks on listed firms are done to take a long, or short, call on that company. The use of forensic accounting by hedge funds is increasing as they do not want to go wrong on their initial bets on the Indian stock market,” said Ramesh K Vaidyanathan, managing partner, Advaya Legal, a boutique law firm based in Mumbai.
Industry trackers say that hedge funds have got curious about the Indian market in the past six-seven months. “After the general elections earlier this year, global hedge funds are showing increased interest in Indian capital markets. Gathering business and market intelligence help investors, including hedge funds, to assess risks and opportunities related to their target investments,” said Dhruv Phopha lia, managing director, India lead er, global forensics and disputes Alvarez and Marsal.
In a recent incident, a hedge fund after such an investigation discovered that an automobile company was misrepresenting data on some of its financial as sets. “The valuation of invento ries was lower than what was ac tually claimed as some of that (in ventory) was not usable in the com pany's new prod ucts. The hedge fund decided to go short on that stock,“ said a per son familiar with the development.
“We are seeing a lot of interest by hedge funds in Inmain concern is cor dia, but their main concern is corporate governance in some Indian companies. We are in touch with an American fund, which may enter India in the coming few months,“ said head of a forensic department in a corporate consultancy .
COMES AT A COST
The forensic analysis, or checking claims made by listed firms, comes at a cost. The in-house analysts recruited by hedge funds are paid . 18 lakh per year at least around ` On the other hand, a detailed but basic forensic analysis could cost anywhere around ` . 7.5 lakh. This cost compared with the bets, often running into millions of dollars, is a reasonable price to pay for taking the right call on an Indian stock., “The cost of such a background check would depend on the depth of information needed, purpose and , who is asking for the information.
Broadly, two levels of credible background checks are common -the first, intensive desktop-based checks, and second, elaborate field enquiries that use human source intelligence,“ said Jagvinder Brar, Partner, Forensic and Investiga tion, KPMG India. In most cases, funds make money by taking contrarian bets based on the financial and forensic analy sis. However, many US-based firms are treading cautiously in India. “After the 2009 hedge fund insider trading scam in the US that result ed in the indictment of prominent individuals of Indian origin, glob al hedge fund managers are extremely careful in the way they gather information of publicly traded companies. Using a re search-based methodology, busi ness intelligence helps in reveal ing facts on the ground about how a specific company or an industry operates,“ Dhruv added.
Industry watchers say that the rules of hedge funds are relative ly new to India. “Hedge funds have a small, but growing base in India. The country lacked clear rules and guidelines, and Sebi no. tified the Alternative Investment Funds (AIF) regulations only in 2012 to regulate hedge funds. Go ing ahead, we expect to see an in creased need for regulations and enforcement action regarding fi nancial instruments,“ Brar said.
SOURCE TOI
FOR SEARCH AND INSPECTION SERVICES CONTACT US
CONTACT GAURAV +919990694230
