Investing in private markets has historically been a complex exercise. At TIFIN Private Markets, we believe in streamlining alternative investment operational due diligence (ODD) as a means of increasing access to this key asset class. In this article, we explore the fundamentals of this critical step in the investment process.
What is Operational Due Diligence?
Operational due diligence is about understanding a fund manager’s internal operations to protect investors from losses resulting from operational failures or, in a worst-case scenario, fraud. Many smaller practices don’t have the staff to perform their own due diligence on alternative investments, which can be complex and has been a limiting factor in providing clients with an access to the uncorrelated returns they may provide.
This is where using a platform or marketplace that has this step can make the difference. At TIFIN Private Markets, we take care of OPP for advisors, ensuring they save time and enjoy the confidence that OPP has been performed with diligence – and has been documented on their behalf.
- Corporate Governance and Organization Structure – This includes the firms operating history, ownership, Board of Directors, employee background checks and turnover.
- Compliance, Regulatory, Legal and Controls Testing – This includes making sure that the firms compliance functions are overseen by a Chief Compliance Officer or an outside consultant. This step makes sure that each firm has a compliance manual and that it is reviewed each year with the staff.
- Business Continuity/Disaster Recovery (BCP) -This includes making sure that the firm has a BCP in place and that it is up to date. It also includes making sure that there is a backup if systems go down. Cyber Security Controls are also reviewed.
- Trade/Transaction Review – This includes how trades are entered, executed, and finally reviewed by a principle of each firm.
- Back Office and Cash Control – This includes a review of reconciliation and journal entries entered into the firm’s accounting system. A review of who is allowed to withdraw funds from the firm’s accounts is checked.
- Counterparty Risk – This step includes checks and balances on outside vendors and trading counterparts.
At TIFIN Private Markets we take ODD very seriously and have a two-step due diligence process before any manager is made available to advisors and their clients. Our dedicated research team evaluates each manager as if we were the advisor, then we send in a third-party to review each manager before they are added to the platform. All of these reports are available to all of TIFIN Private Markets clients upon request.
To learn more about TIFIN Private Markets, we invite you to schedule time with our team.