Fear of fraud: warning signs to help avoid it

Managers' criminal records and past bankruptcies are clear red flags to potential investors, but a plethora of other less visible nasties can remain hidden to the unwary until it's too late

Most advisors and investors agree that fraud constitutes their primary concern in hedge fund manager selection. Identifying signs that warn of a manager's propensity to commit fraud, therefore, is a difficult but critical art.

Whereas red flags - criminal records, bankruptcies or a history of fraud - trigger stay-away alarms, certain yellow flags are more subtle but just as important to consider.