After an operational due diligence review of a fund is completed, investors are left with a series of operational risk data points. This operational risk data is certainly useful for the purposes of making a determination of the operational riskiness of a particular fund. This data however, also has other uses which can benefit investors in performing future operational due diligence reviews.
Collecting a continuing series of data points about fund manager operational practices can lead investors to develop a greater degree of internal competency about fund operations. This is only intuitive – the more you do something the more education and better at it you generally become. This same line of thinking can be paralleled in operational due diligence. It is in this way, that investor’s can improve upon their operational due diligence review by collecting and analyzing operational due diligence information to study fund operational trends.
Corgentum Consulting conducts such operational due diligence research across all fund managers it reviews. Our firm was recently featured in a PE Manager article discussing their research into Private Equity firms. The piece was titled, “Full Suite Systems Becoming Industry Norm,” written by Nicholas Donato. The article covers a range of statistics obtained exclusively from Corgentum’s operational risk database. Analysis of this data produced the observation that larger General Partners (“GPs”) at private equity firms are transitioning to full-suite operational systems as opposed to midsized systems.
By leveraging off of operational risk data, investors can develop a sanity check to obtain a better understanding of how a fund’s operational practices actually compare to its peers. Such comparisons can be made across certain fund strategies, geographically or antagonistically across multiple fund types.
For example, one of the important things to be looked at during an operational due diligence review is technology and systems. If a fund manager claims that a certain system is widely used throughout the industry analyzing operational due diligence information can provide a reality check to help an investor better determine if this is actually the case.
Operational due diligence data analysis can also provide benefits beyond just benchmark analysis. Such analysis can also provide insights into industry operational trends. In contrast to exogenous industry trends, such as the shifting regulatory landscape, endogenous fund manager operational practices may be more opaque. This is where studying operational due diligence data can provide a window into trends in fund manager operational practices.
Investors can benefit by incorporating not just qualitative analysis of fund operations but also quantitative benchmark analysis as well. Such information can give investors a better understanding if their fund managers are standing on more solid footing as an operational leader, or simply following along with the rest of the group.