If anyone out there is considering starting a hedge fund, there's a few things you should know. Don't want to scare anyone but...okay we're just going to come out and say it- according to reports, "gone are the days when a trader could leave some Wall Street firm with a few of his buddies, snap his fingers and raise several hundred million dollars overnight." Now, you might have to spend six months to a year raising money and not only that? You're going to have to make it through several rounds of due diligence by potential investors. You may also have to come face to face with a guy named Neil Chelo who some people (Neil) like to call The Enforcer.
Chelo honed his craft while working for Madoff nemesis Harry Markopolos (who last year nominated Chelo to pose for the cover of Playgirl). Now as the director of research for Washington-based fund of funds Benchmark Plus, he tears apart potential investments with his bare hands and/or vicious rhetoric and line of questioning. "I'm not a conference room type of guy," Chelo says "It's very easy for people to fake it for two hours in a conference room, but it's a lot more difficult if you are at their desk going through their portfolio."
During a recent visit to a West Coast hedge fund that Benchmark was considering investing in, he found one of the fund's top portfolio managers woefully unprepared to explain why she was shorting, or betting on a decline in the price of several stocks. Chelo said the trader and her team of analysts hadn't done sufficient research on the stocks for him to get comfortable with the notion of committing money to the hedge fund. When Chelo walked out the door, he didn't look back.
You've been warned.