perfORM is an award-winning, international (UK, Switzerland, USA) and standalone Operational Due Diligence solutions provider with 100+ years of collective ODD experience.
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By James Newman, Co-Head and Co-Founder
ODD’s come near the end of the investment due diligence process: I think we’re not going out on a limb here to suggest 6-8 weeks, sometimes less, sometimes more, is not unreasonable and time well spent for those close to the ODD process. Perhaps it is the timing of engaging ODD that can come at a particularly critical time in the investment cycle for an Allocator, and therefore turnaround time is key. For good reasons, often deployed near the end of the overall due diligence process (investment due diligence, legal, commercials, etc), every day becomes one day nearer a subscription deadline or close, and, therefore, there is a real palpable sense to avoid delays and allow sufficient time to consider the ODD report findings.
Generally there is a 3-part process to an ODD and more on this later. Some people ask if this means 6-8 weeks working every day (and therefore billing for every day) which, if that were true, would be great for ODD service providers and fees, but in reality is very different. Time passes whilst waiting for answers, requests, contact details, setting up video calls, etc. The duration is more reflective of the total time that is generally needed to bring everything together in an ODD review, to digest the information, to compare and contrast, and to evaluate the significance of the risks identified for our client.
Efficiencies to improve turnaround time: at one level, efficiencies can be gained from being super-organised, super-responsive, willing to chase down people who owe you information, buy-in from the target, detailed manager DDQs and being clear on what is required from those you seek information from. At another level, an on-line ODD platform chosen selectively can bring 10-20% efficiency gains through the management of questions and data, so that the analyst is left to do more analysing not admin. AI? Watch this space.
Quality is a rare commodity: as a former Global Head of ODD at Barclays Wealth Management, I once reviewed an ODD report from a well known and established ODD provider. I fundamentally disagreed with the conclusions. It contained correct observations for the most part but failed to spot the resultant operational risks and left me with a feeling that the ODD analyst had just gone through the motions but not really considered the risks! That is, after all, what an ODD report and the analyst is commissioned to do – not tell a story but relay the risks and our opinion about them. Key to avoiding a ineffective ODD report is to deploy experienced and intellectually curious professionals who are good at knowing what ‘bad’ looks like and able to cut through the noise.
We thought it would be useful to flesh out a little of the ODD journey for an ‘initial’ first time ODD report on a new manager and fund. Refresh reports and monitoring existing relationships, or where we have a copy of a report are of course shorter in duration.
Planning – a review is assigned to 2 to 3 members of the team who play the role of ‘lead’, ‘support’ and ‘pier reviewer’. The client also forms part of the ‘team’ and is included via updates and discussions along the journey. Each stage of the review has a time window beginning with initial introduction to the target, DDQ consumption, document and service provider contact request and reach out, report writing, peer review(s), final issuance of the report and engagement with the client. A completion target date is determined and agreed with the client. Planning is key to a smooth and successful journey.
Engagement – the engagement with the target ramps up as we move more from gathering information to questioning and analysing the information. Often we use targeted video calls (not rambling marathons) to delve deeper into operational and organisational elements and challenge operational controls and procedures. Verification of what we are being told is key via service provider contact, our own background checks, and our own knowledge of the space. The target receives feedback and this is important to supplement our findings and observations.
Report issuance – the client is taken through the report to ensure the risks we have identified and any relevant mitigants are understood and useful in order to assist the client make the relevant decisions.
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.