Once an investor determines that a fund manager’s strategy and performance are a good fit, it must also confirm that the manager’s personnel, infrastructure, systems and controls are adequate and suited to support the investment function and ensure smooth operations. A recent panel at the ninth annual RSM Investment Industry Summit offered the perspectives of an institutional investor, consultant and fund manager on the operational due diligence (ODD) process, including yellow and red flags encountered during ODD and reasons why managers may fail ODD. Alan D. Alzfan, partner at RSM US, moderated the discussion, which featured Neil Datta, director at Optima Fund Management; Simon Fludgate, head of ODD at Aksia; and Louis LaRocca, general counsel and chief compliance officer of Gotham Asset Management. This article highlights their most salient points. For additional insight from Alzfan, see “Eight Refinements of the Traditional ‘2 and 20’ Hedge Fund Fee Structure That Can Powerfully Impact Manager Compensation and Investor Returns
” (May 20, 2011). For further commentary from Aksia and Fludgate, see “Aksia’s 2015 Hedge Fund Manager Survey Reveals Industry Views on Liquidity, Financing, the AIFMD, Liquid Alternatives, Fees, Co-Investments and Risk Reporting
” (Jan. 22, 2015); and “Getting to Know the Gatekeepers: How Hedge Fund Managers Can Interface With Investment Consultants to Access Institutional Capital (Part One of Two)
” (Jul. 11, 2013).