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Due Diligence Matters - July 2026 Bulletin

About perfORM: Operational Due Diligence Specialists for Investment Managers,  Allocators and Service Providers

perfORM is an award-winning, internationally operating due diligence firm, with presence across the UK, Switzerland, USA, and UAE. We are a standalone ODD solutions provider with 150+ years of collective ODD experience. 

The ‘ORM’ in perfORM stands for Operational Risk Mitigation. 

We serve a global and diverse client base, including: 

  • Investment managers seeking validation of their operational controls
  • Allocators – family offices, multi-family offices, private banks, wealth managers, funds of funds, asset managers, pension funds, endowments, and foundations – requiring robust third-party operational due diligence on their manager relationships
  • Third-party service providers and sports teams

Operational Risk identification: Nearly 7 years in business and 500+ reports later…

Last quarter, we surpassed 500 ODD reports for clients across 30 investment strategies over 6+ years. This work has given us deep insight into operational risk, which we are pleased to share with clients, industry contacts and readers of this popular monthly e-bulletin.

The objective of every Allocator On-Demand ODD review and report is to identify material, important operational risks in absolute terms and also to benchmark those risks to other investment managers running similar strategies in order to give a sense of perspective. Investing is all about risk-taking – sometimes the risks outweigh the potential upside.

Across our 500+ reviews we identified a significant number of operational risks that were material to the review and worthy of consideration in consultation with our Allocator clients. Below is a sample of these risks:

No. 
Risk item listed alphabetically
High-level explanation

1

 Asset Security and Custody In relation to crypto and digital asset funds for which, unlike traditional securities, digital assets are typically held directly by managers through control of private keys, rather than through a trusted intermediary such as a bank, broker or custodian.
2 AUM and Business Viability Low AUM or fee-earning assets can put financial strain on investment management companies.
3 Audit and Financial Statements Delays, matters and qualifications can add uncertainty to an investor’s understanding of a fund.
4 Cash Controls Weak cash controls can increase the risk of misappropriation of cash through fraud or error.
5 Compliance Framework and Policies Compliance policies that are generic, inaccurate, lack detail or are out of date can increase compliance risk.
6 Concentration Risk Reliance on a small number of investors, or type of investor, without which the fund’s AUM may fall below breakeven.
7 Conflicts of Interest including familial relationships Interests that can be in conflict with the investment manager’s primary task of meeting its agreed investment objectives without appropriate checks and balances e.g. independent administrator for valuations and cash controls where appropriate.
8 Counterparty Risk Undiversified counterparty exposure, due to a sole prime broker relationship, or, in the case of digital asset funds, leaving assets on exchanges, which are prone to losses arising from hacking, loss of passwords, compromised access credentials, malware or cyber-attacks, as well as default, increase counterparty risk.
9 Due Diligence and Information Limitations Managers with a limited operating history and an untested operational environment typically have insufficient data points to allow for a full assessment of the operational framework.
10 Fees Higher than expected fees, high total expense ratios.
11 Fund Structure Complex fund set-up and lack of transparency may lead to a lack of confidence in the accuracy of the NAV calculation.
12 Governance and Board Independence Lack of independent oversight at the fund board level and/or a lack of governance at the manager level may mean that the CIO is unchallenged in decision-making.
13 IT and Cybersecurity Insufficient cybersecurity preparedness and/or a dependency on relatively untested proprietary systems increases information security risk.
14 Key Person and Succession Reliance on key persons and/or a lack of identification of the key persons can lead to a lack of preparedness in the event of a key person event.
15 Liquidity and Redemptions Liquidity mismatch between the fund’s strategy and its redemption terms increases the likelihood of side pocketing or suspending redemptions and different terms across share classes.
16 Operational Controls and Infrastructure Lack of appropriate accounting/compliance systems, poor controls governing the change management process for proprietary systems.
17 Regulatory Fines, sanctions and disciplinary proceedings may indicate a weak compliance environment.
18 Risk Management Independence Reliance on the investment team to manage risk, rather than a non-investment team member, either directly or via a majority non-investment team risk committee, typically compromises the effectiveness of the risk management function.
19 Segregation of Duties Covers a wide range of controls within back office teams and between front/back-office teams.
20 Staff Background Checks An inadequate background checking process may increase the risk of hiring an employee who is not appropriate for the role.
21 Staffing and Resourcing A high level of staff turnover can lead to insufficient coverage/expertise/experience and may be indicative of more significant issues at the manager.
22 Valuation Valuation issues in relation to fund positions, policies, fair value, independent verification etc may lead to a lack of confidence in the accuracy of the fund’s NAV.

 

These findings underline the importance of operational due diligence as a core part of investment manager selection and monitoring. The risks identified are not simply administrative issues; they can affect asset security, governance, valuation, liquidity, business resilience and investor outcomes, increasing the risk of loss through fraud or error. By considering these risks early, clients are better placed to understand whether they are adequately managed, compensated by the investment opportunity, or material enough to influence an allocation decision.

perfORM’s ODD Report Solution: Operational Due diligence for Investment Managers and Allocators 

perfORM’s ODD Report Solution is not just another tick in a box, it is a fast growing and innovative approach to operational due diligence. A pragmatic solution for investment managers and service providers which engage us to complete an ODD review.

“We believe in operational excellence, doing things ‘the right way’ and holding ourselves accountable for delivering institutional-grade asset management. Working with perfORM to review our processes thoroughly is key to ensuring our investors have independent insight, understanding, and confidence in how we manage their assets. We appreciate the perfORM team’s forensic review of our documentation and processes and look forward to collaborating again” – Investment Manager ODD Report Solution client

Contact perfORM to discuss ODD support or to receive a sample ODD report.

You can also read our June bulletin edition and watch our new video which introduces perfORM and each of our of core ODD services.

ODD Report Solution Clients