Checklist of Due Diligence of Money Manager

The due diligence is a fine balance between authenticity, transparency and longevity of a money manager. Before opening a PAMM Account, conducting due diligence is vital for the prospective account owner. Due diligence is generally a method of examining a money manager account and must be conducted before opening an account. This should be done clearly because choosing the money managers is the vital decision of opening a PAMM account. 

A checklist of Due diligence of money manager is mentioned below 

Past Performance in terms of ROI: 

Before opening a PAMM account, you should check the past performance of the money manager. While, we are aware that in forex trading past performance analysis is of limited value in determining future performance, but it can help you to  shortlist the money managers. For checking the due diligence of a money manager, you should check its consistency in different time frames in composites of quarterly ROI.

Performance in relation to assumed risk: 

There are several measures that an investor can use here to evaluate the past performance, such as the alpha, beta, and standard deviation.  This is very important to analyse the performance data but you may need a professional financial advisor to help in selecting the best money manager

Consistent activities of manager to Stated Investment Style

At the time of conducting due diligence of a money manager, you should evaluate its investment process, you should not opt services of a money manager who is taking earnings-based investment decisions.  This investment style drift into growth investing that ultimately destroys your allocation strategy. 

 Evaluate Performance in both `up’ and ‘down’ markets 

At the time of conducting due diligence of a money manager, you should consider the decision and working of a money manager in both up and down market. Most professionals would accept a manager who experiences only 80% of the upside and the downside is only 70% while individual investor want all the upside with no downside; but for my opinion nearly same performance in both upside and downside markets is valuable

The due diligence of money manager should reveal the consistency in trading and doesn’t chase fads or ‘hot’ sectors.  Chasing for returns not for trading is for amateurs, not professionals.