February 22, 2019
Research Update: Survey Shows Investors Re-emphasize Compliance and Cybersecurity During Operational Due Diligence
A new survey by Corgentum Consulting announced today, shows that both investors and operational due diligence (ODD) analysts in hedge funds and private equity managers feel that the scope, depth and complexity of ODD reviews has continued to increase. Specifically, 82% felt that this increased complexity has added substantial challenges to the ODD process over the last year.
Renewed Focus on Compliance and CybersecurityA large majority of those surveyed (79%) indicated that they are spending more time analyzing regulatory and compliance risks during ODD as compared to last year. Survey respondents indicated that the compliance and regulatory related areas that have received the most focus of late include:
- the 2019 examination priorities announced by the United States Securities and Exchange Office of Compliance Inspections and Examinations (OCIE)
- Europe’s General Data Protection Regulation (GDPR)
- Brexit uncertainty
- new UK regulations including the UK Senior Managers Regime (SMR) and the Packaged Retail Investment and Insurance-based Products (PRIIPs)
Those investors and ODD analysts that participated in the survey also indicated a 59% increase in the overall time that they devoted towards performing due diligence on cybersecurity and related issues including the ongoing risks of phishing scams, email spoofing and social engineering attacks.
Are Operational Due Diligence Resources Keeping Up With Fund Manager Complexity?A second trend that emerged from the survey results was that despite this increasing regulatory and cybersecurity complexity, the resources allocated to operational due diligence have not kept up commensurately. Specifically, 79% of respondents admitted that they have not increased operational due diligence resources to sufficiently keep up. This resource mismatch appears to not only be contained to initial pre-investment reviews, with 89% of ODD analysts that participated in the survey indicating that felt they did not have enough time or resources to thoroughly monitor operational risks on a post-investment basis. Furthermore, 68% indicated that they felt their background investigations on fund managers could be more rigorous.
“The data shows investors are being tasked with more complex operational due diligence challenges and that is straining existing resources. As the compliance and technology environments for hedge funds and private equity continue to evolve, allocators must consider how they will devote more resource toward operational due diligence to evaluate and monitor these risks going forward,” said Jason Scharfman, Managing Partner of Corgentum Consulting.
Corgentum conducted this survey as part of the firm's webinar series. The results were first presented exclusively to premium subscribers of Corgentum's monthly newsletter, Due Diligence News.
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January 15, 2019
Is your Operational Due Diligence Program Equipped to Handle New Regulatory Changes in 2019? Signup for Corgentum's Next Webinar to Find Out
2019 brings with it a new series of challenges for those seeking to evaluating operational risk in fund managers as part of the operational due diligence (ODD) process. Corgentum Consulting announced today that it will be hosting the first webinar in its 2019 series. This webinar will focus on emerging trends in investor operational due diligence (ODD) approaches for hedge fund and private equity for 2019 with a key focus on updates on US SEC and UK FCA regulatory exam priorities. The session will take place on Wednesday, January 23, 2019 beginning at 10:30am EDT. Signup today!
Topics that will be covered during the webinar include:
- How to develop and implement an action plan for effective ODD in 2019
- Update your compliance analysis strategies –
- How will Brexit impact fund managers in the UK and across Europe?
- Examining the impact on alternative fund managers as a result of evolving regulation including the
UK Senior Managers Regime (SMR) ,
General Data Protection Regulation (GDPR) ,
European Markets in Financial Instruments Directive II (MiFID II) , and
Packaged Retail Investment and Insurance-based Products (PRIIPs)
- Conflict of interest analysis - Review of current frameworks with a focus on deal allocation and co-investments
- Understand 2019 UK Financial Conduct Authority (FCA) examination priorities including an increased focus on marketing material disclosures, fund manager cybersecurity and third-party service provider risk management
- Analyze 2019 US SEC examination priorities in the areas of best execution, fees and expenses, oversight of the use of third-party marketers including the Cash Solicitation Rule (Rule 206(4)-3) , and analysis of electronic communication messaging usage and archiving as per the Books and Records Rule (Rule 204-2)
- How to best
integrate your ODD and background investigations
If you are interested in attending the upcoming webinar, please signup here .
Space is limited, and priority access will be provided to premium subscribers of Corgentum's monthly newsletter, Due Diligence News . If you are not already a premium subscriber of our newsletter you can contact us to learn more.