Sometime in the course of his studies at Rutgers University in the 1980s, Randy Shain got hold of a copy of What Color Is Your Parachute? (a career guide for the aimless). It helped him realize that he was a snoop at heart and that detective work was his thing. So he went to work briefly for a private eye and in 1993 co-founded BackTrack Reports, which specializes in background research on money managers. The New York firm was acquired in 2004 by California-based First Advantage Investigative Services but is still run by Shain, who met recently with Senior Editor Karl Cates.
How has your client base changed?
I’d say that from 1993 to 2000, 90 percent of our work was in the IPO market, M&A and private equity; the rest was in hedge funds. That percentage has almost flip-flopped now, and 80 percent of our work is hedge fund–related. And then 80 percent of that is funds of funds looking at hedge funds. We do about 1,500 reports a year.
Are hedge funds dying out?
Performance issues are making it harder for some to stay in business. And it’s harder to start out now than it was. Regulatory change is not without its costs.
What does it take now to launch a start-up?
One hundred million dollars is no longer that much, and I’d say $500 million is low.
What do clients ask you to look for?
What kind of litigation is in a hedge fund manager’s history. They may want work history: So-and-so worked here and he worked here, but there’s an eight-month gap — they want to know why. Sometimes that can be a measure of whether someone’s telling the truth about their past. They want to know everything in the public record.
Are they interested in divorce proceedings or allegations of drug abuse?
They may look at something like that and say, “Hmmm, this could be really distracting.” Generally, they’re looking at whatever might become a risk to them down the road.
Do you get outlandish requests?
Occasionally, people will ask, “Can you do a BackTrack lite?”
Can you?
No, it’s preposterous. What we do is akin to building a bridge. You have to do it right from the ground up — use the good cement.
