Fund Managers Can Make Their Funds More Attractive Through Mock Operational Due Diligence

The modern-day institutional investor demands far more from fund managers than attractive strategies, as the superficial, check-the-box reviews of decades past have been replaced by multifaceted operational due diligence (ODD), often undertaken by a dedicated internal team of specialists or a third-party advisory firm. Today’s ODD is far from a nominal “kick-the-tires” exercise, as seasoned professionals methodically dissect and scrutinize all aspects of an adviser’s business and investment operations. The most discerning investors also endow their independent ODD teams with veto power – the unilateral right to vote down, delay or place contingencies on allocations if they identify procedural weaknesses or deficient controls. In order to adequately prepare for this greater scrutiny, investment managers are increasingly turning to professional consultants to perform mock ODD reviews that closely mirror the type of diligence large allocators or their hired guns are likely to conduct. Through this process, fund managers can explore the questions that will inevitably be asked; formulate responses; identify potential issues; and proactively craft the narrative that highlights strengths and mitigates perceived weaknesses. In a guest article, Sean Wilke, partner at Greyline, discusses the concept of a mock ODD exercise in terms of: (1) structure and scope; (2) individuals who commonly participate; and (3) how and which managers benefit from this type of review. See “Emerging Managers Need Appropriate Infrastructure – Not Only Solid Performance – To Attract Investors” (Jun. 20, 2019); and “Perspectives on Operational Due Diligence From an Investor, Consultant and Manager” (Nov. 9, 2017).

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