Operational due diligence

An evolving operational risk challenge

Investing structures, financial instruments, regulatory frameworks and enforcement levels are continually changing over time. Technological progress continues apace. Meanwhile, investors’ portfolios are also becoming increasingly complex, with more clients using a wider range of asset classes, niche strategies and emerging managers. bfinance ORS covers all asset classes, including hedge funds, private equity, real estate, infrastructure, equities, and more.

These developments create new hurdles for investors that seek to evaluate and control operational risk. We see investors placing more focus on ODD considerations when making manager selection decisions, to reflect the shifting landscape of potential threats, and also seeking guidance on non-investment risks associated with their existing manager relationships.

Our ODD process

Initiate review

To initiate the review process, a documentation request is first sent to the manager to gather all relevant materials. This is followed by the distribution of strategy-specific Due Diligence Questionnaires (DDQs) to ensure that the information collected aligns with the particular investment approach being assessed. Managers are also asked to provide supporting evidence to substantiate their responses and demonstrate adherence to stated policies and practices. Finally, the agenda for the review is agreed upfront to ensure alignment on expectations, focus areas, and timing.

Manager assesment

As part of the manager assessment phase, the collected manager information is thoroughly analysed to evaluate the investment strategy, operational setup, and overall governance. Where appropriate, background checks are conducted to verify the integrity and track record of key individuals and entities involved. This stage also includes interviews with the manager and relevant service providers to clarify responses and gain deeper insight into the manager's operations. Any follow-up items identified during the process are addressed to ensure a comprehensive and well-informed assessment.

Reporting

In the reporting phase, any identified areas for improvement are addressed through the negotiation of control enhancements with the manager to strengthen governance and risk management practices. Constructive feedback and guidance are then provided to support the manager in implementing these changes. Finally, the assessment team formalises their overall view based on the findings and outcomes of the process, and an appropriate rating is assigned to reflect the manager's risk profile and operational readiness.

Client review

During the client review stage, the final report is delivered to the investor, outlining the key findings and conclusions of the assessment. Where appropriate, guidance is provided on any issues the client may wish to negotiate further with the manager. Additionally, the team remains available to address any points of clarification to ensure the client fully understands the outcomes and implications of the review.