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Targeted operational risk services
bfinance’s ORS function provides extensive support with operational risk management across all public and private market asset classes.
Flexible services are designed to work around investors' different needs. We assist clients with ad hoc Operational Due Diligence (ODD) during manager selection, either on a standalone basis or as part of broader Investment Manager Due Diligence. In addition, the team provides operational risk assessments and monitoring over the longer term: this can (if preferred) be part of a broader Portfolio Monitoring program.
In all cases, a rigorous approach to operational due diligence provides in-depth assessments of managers’ policies, procedures and resources across key control functions.
Analysis is supported by the use of bespoke due diligence questionnaires, tailored to address clients' needs. Reports clearly present the information that is most pertinent to you. And, where possible, the team works proactively with managers to resolve areas of weakness by introducing operational improvements.
Supporting investment manager due diligence
Institutional investors are more focused than ever on operational due diligence as part of manager selection. Indeed, many are now receiving prescriptive guidance from regulators on the need to conduct thorough assessments of asset managers' operational processes and controls.
Meanwhile, the challenges are evolving. Regulation, fund structures and financial instruments continue to become more complex.
Cyber risks are changing rapidly. Asset managers are using larger networks of third-party providers. The shift towards ‘working from home’ has created new threats. Private market and alternative strategies – a growing proportion of investors' portfolios – bring greater exposure to uncompensated risks; global regulators are requiring greater transparency from firms which had historically been subject to fewer disclosure requirements.
Latest case studies
Focused ODD Assessment, Private Equity
The investor, a German public pension scheme, was conducting a search for a global private equity...
Operational Due Diligence, US Equity
The investor, a Dutch corporate pension scheme, was seeking outside support to review the...
Latest insights from the team
Key issues to address during ODD include:
We believe that investors should perform a comprehensive ODD assessment on all investments, irrespective of manager size or strategy focus. While the nature and scope of an ODD exercise will vary dependent on the target manager and their strategy, similar risks and issues exist across the board. The table below shows a (non-comprehensive) overview of the main points that should be addressed in an ODD review.
| • Control function | • Areas of focus | • Control function | • Areas of focus |
|---|---|---|---|
| Organizational structure | • Corporate structure • Ownership Assets under management • Governance framework • Key committees • Pre-employment screening |
Regulation, audit and compliance | • Regulatory relationships • Compliance framework • Policies and procedures • Employee education • Internal audit • Internal control reporting |
| Trading/transactions | • Trade execution • Pre-trade compliance • Best execution • Order allocation • Trade errors |
Risk management | • Investment risk • Operational risk • Counterparty oversight • Prime brokers and ISDA relationships • Collateral management |
| Middle office, back office and valuation | • Trade settlement and reconciliation • Valuation methodology • Shadow accounting • NAV confirmation • Cash controls |
Cyber security and business continuity | • Penetration testing • Security awareness training • Phishing simulations • Multi-factor authentication • Business continuity planning |
