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Due Diligence Matters - March 2026 Bulletin

Operational Due Diligence for Investment Managers: Key Qualities for Effective ODD

Effective operational due diligence for investment managers begins with a fundamental question: are adequate controls in place at the investment manager (IM) to prevent loss through fraud or error? The answer is never assumed to be yes. This bulletin outlines the four qualities that define robust ODD reviews – and the approach perfORM brings to each.

About perfORM Operational Due Diligence

perfORM is an award-winning, international (UK, Switzerland, USA and UAE) and standalone Operational Due Diligence solutions provider with 150+ years of collective ODD experience. 

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

Our clients are global and diverse, including Investment Managers, Allocators (e.g., Family Offices/Multi-Family Offices, Private Banks, Wealth Managers, Funds of Funds, Asset Managers, Pension Funds, Endowments, Foundations), Third Party Service Providers and Sports Teams.

Professional scepticism in Operational Due Diligence

The main purpose of operational due diligence (ODD) is to answer the question “are adequate controls in place at the investment manager (IM) to prevent loss through fraud or error?” Effective operational due diligence begins with the assumption that adequate controls are not in place. The objective of the ODD review is to ascertain whether this assumption is correct or not.

Since an ODD review cannot audit the investment managers in review, we place significant importance on verification via third parties, primarily the fund administrator, and the fund’s audited accounts. As noted in previous e-bulletins, engagement with the administrator, and asking the right questions, has revealed information which has led to IMs/funds being categorised as high risk.

We also perform background checks and, at our disposal, are independent reference checks on the key operational staff.  

Persistence in gathering ODD Information

Robust operational due dillegence requires a level of detailed information that investment managers, especially emerging firms, may not be used to providing, for example with regard to processes around cash controls and information in relation to investor concentration.

Where vague, contradictory or out-of-date information is provided, it is important to follow up to obtain as full and accurate a picture as possible.

Risk assessment: why effective ODD is never one-size-fits-all

The ability to recognise how relevant a risk is for a specific type of investment manager, rather than applying a “one-size-fits-all” ODD checklist, allows the ODD analysis to target those areas which present a greater risk.

Compliance risk, for example, is generally higher for IMs running funds running fundamental equity long/short strategies, due to the increased likelihood of receiving material non-public information (MNPI), than for macro or systematic funds. For systematic funds, the ODD review would expect to address risks arising from the development of proprietary systems.  

Consultative approach to operational due dilligence

The primary output of perfORM’s ODD review is a risk observation table which summarises the risks identified during the review, the level of risk presented by each of these, and the mitigations in place to address them.

Some risks are unavoidable, for example liquidity risk for a private credit or real estate open-ended fund, and it is up to the prospective allocator to determine whether they can accept this risk, but appropriate redemption terms can help to mitigate the risk of the fund suffering an avalanche of redemptions. Where there is a potential liquidity mismatch between the portfolio and the redemption terms, we can work with the IM to address this.

Other areas where perfORM have worked with investment managers include segregation of duties, cash wires, valuation and third-party oversight. For emerging firms, and sometimes very well-established IMs whose processes and controls have not kept pace with institutional developments, perfORM’s consultative approach has helped to align operational functions with best practice.

perfORM’s ODD Report Solution

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 February bulletin edition and watch our new video which introduces perfORM and each of our of core ODD services.

View previous ODD reports