Financial detectives

Quest Research goes behind the deals and people that make up Asia''s financial universe. We talk to Asia''s fastest growing financial investigation agency.

Quest Research began life three years ago with two members of staff who had recently left the Hong Kong police force. Three years on and the company has grown to 125 people based in offices in Beijing, Hong Kong, Dubai, Bangalore, Mumbai, Perth and Tokyo.

The company provides specialist corporate information research and screening services and is used by leading banks and multinational companies doing business in the region. The rapid growth of Quest could be testament to the murkiness of Asia's markets. Or it could be an indication that Asia is now operating along the lines of global norms. We talk to Michael Short, managing director, and Nick Green, business development manager about life behind the scene.

What exactly does Quest Research do?

Short: We have three lines of business: compliance solutions, pre-employment screening and corporate due diligence and business intelligence. We religiously stick to these three lines of business. It is a strategy that has served us well. We are not private investigators and we don't follow people's wives around.

Is the fact that you have grown so quickly an indication that there is a lot of fraud in the market?

Short: There has always been a lot of fraud. Our growth is more an indication that we have hit the market at the right time with the right services and focus. US companies, for instance, have always used pre-employment screening, and it is even enshrined in law that certain occupations have to be screened. Europe is five years behind that. Asia was virgin territory for pre-employment screening when we started, but it was obvious that there would be a demand, especially from US banks, who need to screen candidates here to the same degree they do worldwide.

When you do pre-employment screening, are you doing it just because it has to be done or do you turn things up?

Short: It is interesting want you do turn up. It is usually people just overstating qualifications, salary and job title – the usual fudging of a CV, which is actually now a criminal offence in Hong Kong. I would say that 8%-10% of all CVs are fudged in this way. There is a lot of it around.

We had one notable screening case for a bank that had a candidate who had said that he was major dealmaker in Hong Kong and the PRC. He had gone to our client with his CV, his credentials and a list of the deals he had done. So we checked out his deals. We asked people who had also been on the deals if they remembered him. A few said they didn't but quite a lot said "oh the name rings a bell but I can't place him". That kept happening all the way for every deal we looked into. Right at the end we asked someone who was on one of the deals and he said, "yes I remember that guy, he was involved in the deal but he was the interpreter". Good luck to the guy, but he did get caught out in spectacular fashion.

Don't headhunters always say that they do screening as part of the service package they offer their clients?

Green: I worked in the headhunting industry for seven years. Some firms may do screening but at the end of the day the headhunting firm has a vested interest in making the deal happen. So while a headhunter may say that they do pre-employment screening, they really just want the deal to happen. In our situation it is different because it has no bearing on the job we do if the bank hires the candidate or not.

What do you do on the corporate research side?

Short: I spend most of my time doing due diligence for M&A deals and IPOs. We work all over Asia. India and China are our biggest markets, followed by Indonesia.

What would one of your typical assignments look like?

Short: For instance we often work for companies that are looking to take a large stake in a Chinese manufacturing company.

Green: If an overseas firm wants to buy a business in the PRC, then the banker or private equity firm that introduced the foreign firm to the Chinese firm, will use us to identify the integrity and reputation of the Chinese company. We will then find third parties who have had business dealings with the individuals at the Chinese company and then contact them and find out if the original company or individuals can be trusted and if they have a history of defaulting.

Because of increased regulations in the market, bankers and private equity investors need to have documented evidence that they can turn to so they can show that there is professionally produced information about deals they do or introduce to investors. That is the service we provide.

So in many ways you go out to prove that things are OK, not to find faults.

Short: Exactly, we look at ourselves as deal enablers rather than deal breakers.

What do your activities suggest about the state of the M&A market? Is it that there is willingness to deals but a certain wariness about the parties involved?

Short: When the first wave of investment came into China in the 1980s, you had to get in bed with Chinese partners and most of the time not much money was being made. Now that has changed and people need to fully understand whom they are getting into bed with.

There is more concern now about getting involved with people who are politically exposed. The main driver behind that is US legislation such as the Patriot Act or the Foreign Corrupt Practices Act, which have specific provisions against doing business with politically exposed persons.

Before, investors wanted people with good political connections as their partners. Now they are not as comfortable with that as they were. That is very much the case in China and for the rest of Asia such as Philippines and Indonesia. There is a realization that last year's government might not be next year's government.

I presume that is very much the case with your private banking clients?

Short: Banks are very, very careful when a politically exposed person walks into one of their offices and asks to deposit $10 million. This is actually the biggest movement in our business this year, investigations into politically exposed persons. Last year it was terrorist financing.

Green: Private banks are very concerned about their own market reputation and need to find out about new client's prior histories and reputation and in particular if they have withheld information.