Operational Due Diligence

Operational Due Diligence

Operational due diligence enables effective operational management for investment managers.

Partner and Global Head of Investment Management

KPMG in the UK

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An Operational Due Diligence (ODD) assessment can be done on a broad range of asset management strategies, including hedge fund, infrastructure, private equity and traditional asset managers.   The purpose is to challenge key aspects of the target investment managers and answer questions that matter most to clients.

The benefits of an ODD assessment

  • Practical expertise and subject matter specialist able to challenge target managers
  • More informed decision making through market insights and external benchmarking
  • Based on global reach and expertise across asset classes and financial markets
  • Objective approach which is consistently applied to different fund types
  • Due diligence performed as “agreed procedures”. Investors retain control over buy/sell decisions.
  • Work aligned to your investment due diligence timing and/or fund close deadlines

The KPMG approach is tailored to the needs of each client

The key stages are:

  • Scoping/defining procedures
    • Includes defining reporting format, assessment benchmarks, logistics and timescales
  • Documentation review of fund’s corporate documents, prospectus, audited financial statements and manager’s documents. This helps to facilitate an understanding of the fund and manager and assists in identifying areas which may require further clarification.
  • On-site visit
    • In depth discussions on the management of the company, fund structure, investment execution processes, back office operations and controls, pricing and valuation
    • Perform walkthroughs of the key operational processes and controls
    • Review of oversight activities over third party providers
  • Service providers review
    • Independent verification of service providers (administrators, auditors, custodians to prime brokers) identity and scope of services being performed
    • Meet with the service providers on services provided and controls in place
  • Reporting
    • Report factual findings
    • Provide indicative scoring against agreed benchmarks (where required).

Key areas of coverage

Operational due diligence diagram

Conclusions

Since the financial crisis, investors have increasingly come to recognize the need for effective operational due diligence processes alongside the evaluation of investment performance by managers.  Effective operational management can create value as readily as inadequate processes can destroy it.

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