Deutsche Bank’s Hedge Fund Consulting Group Provides a Roadmap to Hedge Fund Managers in Navigating the Operational Due Diligence Process

Deutsche Bank’s Hedge Fund Consulting Group recently released a report analyzing the results of a survey of institutional investors on operational due diligence (ODD).  Survey participants included 68 investors that collectively manage or advise $2.13 trillion in total assets, including $764 billion of assets invested in hedge funds.  Among other things, the report discussed the composition of ODD teams; the frequency and duration of ODD visits; how investors approach the ODD process; circumstances in which ODD teams have and use investment veto rights; priority focus areas for investor ODD reviews; operating and allocation preferences (including which expenses investors perceive as acceptable for charging to the fund); and recommendations to managers in preparing for ODD reviews.  The insights from investors captured in the Deutsche Bank report can help hedge fund managers refine their approach to the ODD process.  In turn, a well-informed, coherent and credible approach to ODD can pay dividends to hedge fund managers in the form of increased allocations and more effective marketing.  This article extracts insights from the report that managers can incorporate directly into their responses to due diligence inquiries.  For more on ODD, see “Legal and Operational Due Diligence Best Practices for Hedge Fund Investors,” Hedge Fund Law Report, Vol. 5, No. 1 (Jan. 5, 2012); and “FRA Conference Juxtaposes Manager and Investor Perspectives on Hedge Fund Due Diligence (Part Two of Two),” Hedge Fund Law Report, Vol. 6, No. 23 (Jun. 6, 2013).

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