Due Diligence Matters - September 2024

perfORM is an award-winning, international (UK, Switzerland, USA, Hong Kong) and standalone Operational Due Diligence solutions provider with 125+ years of collective ODD experience. Over 250 operational due diligence reviews have been completed since the start of 2023.

We are now taking on ODD commissions for September and the rest of 2024. Please contact us if you would like to discuss our services, or to receive sample ODD Reports, thank you. 

Missed the last e-bulletin? Click here for the August 2024 edition.

The importance of using intuition in the ODD process

The Operational Due Diligence process is largely a data-driven process that entails reviewing manager-prepared documentation, legal documentation, audited financial statements, background checks and regulatory filings. This often makes it easier to obtain hard evidence to identify a gap in operational policy or procedure or something that could be a red flag. We call this part the “Science”.

But there’s also the interview portion of the ODD process that creates an opportunity to be able to assess the experience of the staff, the culture at the firm and whether or not their documented policies and procedures are reflective of what they’re doing in practice. This part of the ODD process often relies more on ODD practitioner’s intuition or gut instinct – the ability to “follow the crumbs” and what we call ask “the second question”. Put another way, having the knowledge, experience and confidence to question and challenge manager statements and responses. The interview portion together with an analyst’s assessment is more the “art”. 

Brought together you have the “art and science” of operational due diligence.

The “art” aspect of the ODD process is particularly relevant for emerging investment managers who often rely on a smaller team that may include only key non-investment professional and less documentation. Therefore, their experience and approach in managing the operations of the firm is a key element in gaining comfort over the investment managers operations. 

We recently performed an ODD review of an investment manager where this intuition, or more intangible aspect of the process, was a key factor in our overall operational assessment. In this case, there was a single non-investment professional, a CFO/CCO, who, despite his biography implying otherwise, we judged to have limited knowledge depth needed to oversee the operational infrastructure of an institutional-quality manager. This was initially identified during our first meeting and continued to play out throughout the remainder of the due diligence process. While in some cases, the only solution is to ultimately replace this person, this may not be feasible in the short-term and, therefore, there are interim steps that can be taken to mitigate some of the concerns around potential operational risks.

In this case, the perfORM ODD team worked closely with the manager throughout the process and made numerous recommendations of operational industry best practices, all of which were well-received by the manager and agreed to be implemented. We also created additional touch points with the CFO/CCO throughout the process to allow us to develop a relationship to better open the channel of communication which assisted us in identifying other operational concerns that we were able to mitigate. Finally, we openly communicated these concerns with our client and agreed to more frequently monitor the manager over the coming year to ensure that operational policies and procedures continue to be strengthened.

Being comfortable in relying on your intuition in the ODD process is often something that comes with experience. However it is often needed to ensure the “art and science” come together for an accurate assessment. This is part of the reason why perfORM has hired a bench of experienced ODD practitioners – so that we are well-positioned to tackle these less discernable aspects of Operational Due Diligence.

ODD Report Solution

Our ODD Report Solution is not just another tick in a box, it is an innovative approach to operational due diligence. A pragmatic solution for Investment Managers and Service Providers which engage us to complete an ODD review.

Investment Manager: Fasanara Capital Limited – please contact here to request access to our July 2024 dated ODD Report

Investment Manager: Eltican Asset Management SAS – please contact here to request access to our July 2024 dated ODD Report

Digital Asset Service Provider: Copper Technologies (Switzerland) AG – please contact here to request access to our April 2024 dated ODD Report

Investment Manager: Hyperion Decimus, LLC – please contact here to request access to our March 2024 dated ODD Report

Investment Manager: Coral Cove Capital Ltd – please contact here to request access to our January 2024 dated ODD Report

Investment Manager: MARK Capital Management LP – please contact here to request access to our November 2023 dated ODD Report

Investment Manager: Wincent Capital Management Limited – please contact here to request access to our September 2023 dated ODD Report

Investment Manager: Hivemind Capital Partners UK LLP – please contact here to request access to our September 2023 dated ODD Report