Curriculum·Graduate·G506
Building a Track Record That Survives Due Diligence
The Galleon Group and Raj Rajaratnam, 2009. Rajaratnam ran the Galleon Group, a multi-billion-dollar hedge fund with a track record that had attracted serious institutional money, and it emerged that a meaningful part of his edge came from illegal insider information, not skill; he was convicted of securities fraud and conspiracy and sentenced to eleven years in prison, and Galleon collapsed.
Lesson 1 opens on
The Galleon Group and Raj Rajaratnam, 2009
Raj Rajaratnam ran the Galleon Group, a multi-billion-dollar hedge fund whose track record had attracted serious institutional money, and on the surface the returns were the evidence of a skilled manager. But it emerged that a meaningful part of Galleon's edge came from illegal insider information, tips about companies fed to Rajaratnam before the news was public, not from analysis or skill that could be shown and repeated.7 billion dollars.
The lessons
- G506-01A track record is how the numbers were madeExplain that a track record's value lies in how the returns were produced, not the numbers aloneabout 34 min · opens on The Galleon Group and Raj Rajaratnam, 2009
- G506-02What due diligence actually checksExplain that due diligence checks how returns are produced, not only that they are realabout 34 min · opens on SAC Capital and Steven Cohen, 2013
- G506-03Survivorship, selection, and the record you showExplain that a shown track record can be selected, survivorship-biased, or outright fabricatedabout 33 min · opens on Kirk Wright and International Management Associates, 2006
- G506-04The record that cannot answer the second questionExplain that a record survives due diligence only if it can produce a verifiable underlying realityabout 34 min · opens on Tom Petters, 2008