Operational due diligence

Operational risk is a key aspect of investment manager due diligence and portfolio monitoring. The Operational Risk Solutions (ORS) group supports investors with a range of operational risk needs, from one-off due diligence to ongoing risk assessments.

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

The investor, a German public pension scheme, was conducting a search for a global private 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
Meet the team

Portfolio solutions

Duncan Higgs

Duncan Higgs

Managing Director, Head of Portfolio Solutions

Matthew Siddick

Matthew Siddick

Senior Director, Operational Risk Solutions

How can we help you?

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