Operational due diligence

The industry has experienced recent significant volatility but has lately seen an inflow from institutional investors, leading to a greater focus on the strength and sustainability of systems and controls. Historically, the investor due diligence process has focused on understanding and evaluating the investment process and the associated risks and controls, with operational risk being considered as mundane and deserving of less attention.

A number of recent high-profile hedge fund manager failures have highlighted the potential for serious structural inefficiencies to exist in hedge funds. Identification and analysis of operational weakness is always easier with hindsight, however this is a luxury that institutional investors, with heightened fiduciary responsibilities, can ill afford.

Kinetic Partners’ team of experts can provide an objective and systematic operational due diligence review of existing or proposed fund manager relationships. Building on our proven understanding of processes, activities, systems, operations and organisational structures across a wide number of hedge fund strategies, we can help you reach your investment decision, made with confidence and on cogent understanding of both investment and operational risk. Our service includes:

• Design, consultation, customisation and planning of the operational due diligence approach
• Issuance of a comprehensive operational due diligence questionnaire tailored to the specific strategies being adopted
• Site visit to manager, focusing on detailed review of business processes, including front, middle and back office functions
• Focused discussions and follow up with key service providers including auditors, administrators, prime brokers and verification of referees
• Summary report detailing key findings in critical areas of internal controls and procedures, compliance monitoring, portfolio valuation, assessment of standard of service providers and experience of senior operations personnel
• Benchmarks against industry best practice

For further information please contact Monique Melis in London, David Walker in Cayman or Neil Morris in our New York office.