04 December 2012

Hedgeweek: Hedge fund ODD best practices launched by Rothstein Kass

In an effort to help establish a better framework for the hedge fund operational due diligence (ODD) process, professional services firm Rothstein Kass has launched a set of best practice ODD guidelines.

Designed to improve the ODD process for both managers and investors, the guidelines are the result of a two-day working group where investment managers, institutional investors and a team of Rothstein Kass experts engaged in open discussions to identify the inefficiencies in the ODD process and create best practice guidelines for the industry.

The ODD guidelines are the first formal publication from the Rothstein Kass Institute, a thought leadership “think tank” designed to provide actionable information and insights to the alternative investment and broader financial services communities.

Participants widely agreed that the lack of standardisation, communication and preparation for meetings were major impediments to an efficient ODD process. Investor participants revealed that some investors may be constrained by a lack of resources, which can lead to a fragmented process and redundancies or superfluous work by the managers when they become involved. Another roadblock identified is the difficulty of managing sensitive document requests and disclosures, as both sides struggle with perceived conflicts of interest and materiality.

After uncovering some of the key impediments in the ODD process from both the manager and investor perspectives, the working group identified a set of best practice guidelines to improve communication and meeting preparation procedures used by both investors and managers. Some of the suggested recommendations included:

• providing a complete and standardised documentation package;
• setting meeting agendas in advance to allow for efficient preparation;
• leveraging available information and composing materials with standard answers to commonly asked questions;
• holding operational due diligence days;
• asking the right question to the right person.

Full article

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