For alternative investment firms such as private equity and hedge fund managers, operational risk and/or investment risk can lead to an investor’s assets dramatically diminishing in value. Operational due diligence (ODD) considers non alpha generating activities and includes the review of a wide range of operational risks across the firm, including regulatory compliance, the fund(s), information technology, operations and accounting, administrator, valuation and service providers.
Identification and analysis of operational weakness is always easier with hindsight; however, this is a luxury that investors cannot afford.
What does Kroll's ODD practice offer?
- Assist investors by performing tailored ODD reviews on hedge funds, private equity funds, venture capital funds, crypto funds, DeFi funds, real estate/real asset funds, fund of hedge funds, CTAs, managed account platforms, and service providers and counterparties
- Help managers become more institutional and attract greater capital by preparing them for ODD reviews and upgrading their processes and controls
- With resources in key financial centers – including New York, London, Hong Kong and the Channel Islands – we can provide ODD on both a regional or global scale
Investor clients recognize that they have a fiduciary duty to effectively assess and evaluate the business risks associated with managers to whom they allocate. We serve as a co-sourced partner with our clients in helping them perform this task on both an initial and ongoing basis. The majority of fund failures occur because of operational deficiencies as opposed to poor investment performance, and we play a key role in helping our clients avoid these issues.
Managers who utilize our services and follow our recommendations are able to demonstrate to their clients. as well as to prospective investors, that they run an operationally sound organization. It is no longer good enough to show strong returns to an institutional investor. Sophisticated investors need to be confident that the proper infrastructure and controls are in place prior to making an allocation.
Kroll allows fund allocators to monitor the critical information provided by fund managers through the SEC’s Form ADV system. Regulatory Clarity is a next generation tool that provides fund allocators with actionable information with our Form ADV monitoring and flagging reports.