Why Hedge Funds Should Have a Corporate Investigator on Speed Dial

A famous proverb among Wall Street investors warns that once information is available to the public, investors have already missed the boat. Over the years, many hedge funds have heeded this wise proverb and created internal research departments designed with the specific intent of digging up the best and most relevant information to use for their deal…before the information becomes public.

But, what about those hedge funds who are less progressive? Or don’t have the bandwidth to maintain an internal research group? Instead, what if they utilized the services of a corporate investigator to legally obtain critical information before it hits the public domain?

Whether a corporate investigator can dig up publicly available information from open-source records or rely upon non-public information, through legal means [emphasis added], the information we get you can make or break your deal.

Of course, stay away from the investigator who takes your request to the extreme and gets you information through illegal channels. A good investigator knows the boundaries and sticks to them…if an investigator promises bank account information, wire tapping or insider information, run.

Here’s what a good corporate investigator might dig up…

In Civil Litigation:

Corporations are often hit with lawsuits from partners, suppliers or investors that are typically not reported in the press and in public SEC filings for months. A professional corporate investigator can help you identify relevant litigation and gather pertinent facts relating to the lawsuit before the information goes public.  Going a step further, review of litigation documents and interviews with relevant parties to determine additional facts and disclosures can also identify additional information to understand significance of the potential damages.

About New Executive Leadership:

New executive leadership in a publicly-held company may be unfamiliar to the investment community or a new executive may have been put into a role that does not fit their skill sets. This new executive may be critical to the future success or direction of the company.  A comprehensive background investigation on the new executive may identify past issues pertinent to an investor. For example, interviews with former colleagues or business associates may identify issues about their leadership capabilities, financial acumen or questionable business practices.

Verifying Company Claims:

Any publically-held company can make bold claims about sales of a newly released product, explosive growth or value of certain assets (see Spongetech).  A review of publicly filed documents, interviews with former employees or site visits to worldwide offices or assets (e.g. mines, property, factories, etc.) can provide a glimpse into whether the company is being forthcoming in public claims.

Getting to the Bottom of Explosive Allegations:

Explosive allegations disclosed in news publications, blogs or on financial message boards can provide a glimpse into potential or standing issues of concern, but often these claims must be taken with a grain of salt.  A corporate investigator can initiate a hunt to determine the source of the information and verify these claims can provide additional perspective into the issues or potentially confirm that the issue is not particularly relevant.

What is the “Health” of the Company:

In today’s Internet age, companies have a lot more ways to get information out and even manipulate what is said about them in the press and the investing community, but does this really give you a glimpse into what’s really going on behind the scenes?  An investigator can help get to the bottom of what is really the health of a company. For example, interviews with former employees can give you a better sense into employee morale, financial state of the company, issues with the completion, effectiveness of leadership and overall strategy.