Co-authored by Peter Radetich
Hedge funds are, “aggressively managed portfolio[s] of investments that [use] advanced investment strategies…with the goal of generating high returns.”[1] The funds, which are not subject to the same regulatory constraints of other financial items, still have specific issues that can arise during litigation. In many cases, hedge fund expert witnesses are required to either review, analyze, and clarify the many intricacies of a case’s relevant materials. They may also testify on the industry practices related to the cause of action. The post discusses the expert witnesses frequently brought in to discuss hedge funds and the procedures associated with their function.
Hedge Fund Administration Expert Witness
Hedge fund administrators are useful when litigating cases that involve anything from negligent investment practices to fraud. Typical hedge fund administration experts are investment managers who are responsible for running and managing the hedge funds. They make investment decisions and handle trading and valuation. These managers are often investment firms. As such, the particular party at the center of the issue being litigated will be called to provide testimony on this subject. These types of hedge fund expert witnesses can speak to the industry practices and standards on how to appropriately manage a hedge fund when this is in dispute. Their knowledge will be useful for explaining what reasonable standards managers are held to when working in their administrative capacity.
Structured Finance Expert Witness
Structured finance is the process of making a loan based on a strong performance of cash flow in the past. This is commonly done through collateralized debt obligations (CDOs), which is a type of asset-backed security. Structured finance experts can be useful for litigating cases where hedge funds have invested in such asset-backed securities. Especially when considering they can provide insight on these investments. They are familiar with the customs and practices of the structured finance markets and can speak to the valuation of these structured products. As hedge funds can also be involved in private equity lending, these specific types of hedge fund expert witnesses can provide insight on how this process occurs and the standards that go along with it. Structured finance experts can come from academia or those with business experience in the finance industry.
Distressed Securities Expert Witness
Distressed securities are financial instruments of greatly reduced value from a company close to or currently going through bankruptcy. These include common and preferred stock, bank debt, and corporate bonds. Distressed securities expert witnesses can be useful for their knowledge of the distressed debt market and the Loan Syndications and Trading Association. These types of hedge fund expert witnesses may be useful in a bankruptcy case where a hedge fund goes bankrupt after poor investing. Furthermore, they are useful in breach of contract cases. Specifically where a party begins due diligence prior to the defendant terminating a contract. They can discuss due diligence standards and the procedures used in closing transactions in the distressed market.
