Third Annual Operational Due Diligence Survey (Deutsche Bank)

July 2014

KEYWORDS: due diligence, Survey, due diligence questionnaire, operational due diligence, assets under management, chief operating officer, hedge funds, cross-border swaps, transparency, technology, portfolios, hedge fund infrastructure, organizational structure, Hedge Fund Managers, Institutional Investors, alternative investment, AUM

Authors:

Deutsche Bank

Organizations:
  • Deutsche Bank

Summary:

At the end of 2013, industry assets reached a record high of USD $2.6 trillion and hedge funds, typically classed as an “alternative” strategy, made their mark as an important part of the mainstream asset management industry. The incredible growth of the hedge fund industry, and particularly the growth since the financial crisis of 2008, has led not only to the institutionalization of the industry, but also to the increased utilization of hedge funds as part of an investor’s broader set of portfolio solutions. As a result, the business model of hedge funds has changed considerably. Investors and regulators expect and require significantly more robust operating infrastructure across all levels of the hedge fund organization, ranging from compliance to technology. As a result, Chief Operating Officers (“COO”) at hedge funds, now more than ever, must successfully navigate an exhausting list of challenges ranging from cross-border regulatory reporting and regulatory exams to increased transparency and technology.

Against the backdrop of growth, operational due diligence (“ODD”) remains a critical component of the pre-investment and ongoing due diligence process. Hedge funds need to ensure that their resources and infrastructure meet the expectations of both institutional investors and regulators alike. In our third annual ODD study, the Deutsche Bank Hedge Fund Consulting Group highlights how ODD teams approach a review in terms of skill-sets and process, outlines what managers may expect throughout the initial and ongoing ODD review and provides insights as to how managers may prepare for the year ahead.

Earlier this year, we asked our global hedge fund investor network to participate in this survey. We thank our investor network for contributing their valuable time and insight to make this publication possible.

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