Private Equity Operational Due Diligence

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More investors are looking more closely at expanding the scope of their asset classes such as alternative investments. However, the increased interest begs the question as to the due diligence processes when selecting a private equity fund or hedge fund. Operational due diligence refers to the process of analyzing operational risks, and those risks can be thought of not just investment related but also  the daily management and business operations of the fund. These operational risks not only cover the normal formalized organizational processes but also data security and technical safeguards.

Corgentum Consulting, a company that specializes in Private Equity Compliance issues, conducted a small sample survey of approximately 150 Limited Partners globally. The one requirement to be included in this study was that the investors had either current investments in private equity, or had made an allocation to private equity within the past five years. As with all statistical samples, the larger the size, the higher the accuracy. However, the study is revealing in that there are growing concerns about the quality and level of due diligence being conducted by investors. MetaExperts™, a sister company of MetaOps™ is also directly involved in providing PE third party due diligence for limited partners and investors. However, unlike Cogentum, MetaExperts does not provide or analyze funds investing models. MetaExperts are back-office experts and focused on lean business best practices.

To analyze Limited Partner attitudes and trends with regard to performing operational due diligence reviews, Limited Partners were first asked if they currently conducted operational due diligence on fund managers. As indicated above, the results indicate that the overwhelming majority, 87%, currently perform some sort of operational due diligence.[1]

Private Equity Operational Due Diligence

 

Private Equity Operational Due Diligence

 

Private Equity Operational Due Diligence

Private Equity Operational Due Diligence

Private Equity Operational Due Diligence

Private Equity Operational Due Diligence

 

We applaud the survey done by one of our industry competitors for helping to raise the level of consciousness for the need for more in-depth due diligence of the over 10,000 plus global Private Equity firms managing billions of dollars of investor assets.

[1] http://www.corgentum.com/research/Private_Equity_Operational_Due_Diligence_Trends_Corgentum.html

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