How to Conduct Reference Checks

"Don't forget the simple but important things that need to be done in the investment process."

With over 25 years of experience working with alternative funds, we asked Patrick Campbell of Perth Advisors what the most common miss is by investors during due diligence. “Reference checks”

Reference checks are an important part of the due diligence process. In addition to giving third party validation to the due diligence documents the GP has given you, they can provide additional color on many qualitative aspects of how the principals conduct themselves inside and outside their firm.

For LPs / Investors:

Every investment is different, so your reference check will vary from manager to manager, but here are some guidelines that you may find useful.

Straight historical verification – Does the reference’s recollection comport with the history of the firm/individuals that you have been given.
Have a set of questions pre-prepared. These should be open ended questions (e.g. How do you know Janet Smith?) and specific questions (e.g. Who actually led the XYZ deal when you worked together?)
Questions should also take into consideration the relationship to the principal being referenced (e.g. superior, peer, junior, vendor)
I typically send an email asking for about 20 minutes to do the reference check.
Don’t forget the obvious questions, such as “In your experience, does this person conduct themselves in an honest and trustworthy manner?” After all, you are trusting them with your money.
Most importantly DO THE REFERENCE CHECK! You would be surprised how few investors do reference checks. Ask any former Madoff investor.

For GPs / Fund Managers

Try and give LPs a list of six or so names that reflect and can verify your background, track record, etc. Having an investor or investors on the list who speak highly of you helps immensely.

Also, avoid putting other alternative managers as references. You may not think they are competitors in your day to day business, but they are competitors for capital and I have experienced and heard of numerous instances where “great friends” have turned on each other in the reference process.


Thanks to our contributor: Perth Advisors dedicated to raising private equity and debt capital for financial sponsors and corporations. Perth Advisors helps alternative asset fund managers expand their franchise and grow their capital base in the institutional market. Perth's principals have been involved in nearly $14 billion of private equity and debt transactions from both a buy and sell side.

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