Lawyers and investigators predict that due to the recent hedge fund scandals, most recently the collapse of Bayou Management and the suspected fraud at Wood River Capital Management, investors are more likely to take precaution before entering into the industry, Reuters reports.

It is now possible to hire a firm to investigate a hedge fund company, for fees ranging between $2,000 and $50,000. "Getting reports on managers shows that for $2,000 up front, you can avoid people like this instead of having to spend hundreds of times that amount to recoup millions of dollars in losses later," said Randy Shain, executive vice president at First Advantage CoreFacts, which investigates hedge funds. "Its cheap insurance," he added.

Still, many investors who pick managers do so based on premonitions, rather than concrete evidence.

Shain recommends fact checking, as it is what helped to turn up the discrepancies on Samuel Israel of Bayou

"People will want to know that the person is a good trader, but they'll also want to hear if the guy heads off to the bar and drinks all night and every night," Kroll's Turecek said.

Investors should also demand more clearness on operational matters, like who went over the books after Bayou made up an auditor to certify its returns.

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