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With the Superbowl right around the corner we’re continuing with our football analogy …
You’ve just received a call from an institutional investor who has seriously followed your fund for the last six months. They’ve met with you and your team on multiple occasions to review portfolio construction, understand your risk management process and review the theses of your largest holdings. Today they announce they’re ready to begin the Operational Due Diligence phase of their process.
Congratulations, you’ve made it to the play-offs! But this is no time to get complacent. There’s still real work ahead of you. This is your reality, the investment team thinks highly enough of you that they’ll invest the time and money into the Operational Due Diligence process. However, a trip to the Operational Due Diligence play-offs does not result in a defacto win, ie., an investment. I can assure you the Rams and the Bengals are still putting in the practice this week. The game’s not over yet. Not for you. Not for them.
The Operational Due Diligence Game is all about Special Teams
Don’t expect the same investment individuals you’ve gotten to know over the past six months will also perform the Operational Due Diligence on your firm and fund. It might be the case for smaller investors, but not likely for larger institutions. At the very least, a different due diligence team with alternate strengths takes the potential bias out of the choosing a manager equation.
Stick with your Playbook and Know it Cold
Your Policy & Procedures Manual, as well as your Compliance Manual, are required reading by the ODD professionals and will be used as the basis for questioning and confirming process and procedure at your firm.
It is your choice whether to share manuals outright, allow manuals to be read only onsite, or place manuals in your data room to be shared with or without an NDA.
There’s no Coin Toss when it Comes to Operational Due Diligence—Leave Nothing to Chance
Good Execution and Teamwork Usually Amount to a Winning Formula
Institutional investors can’t invest in every good manager they meet. So as a manager, focus on what you can control.