Guidance on Preparing for ODD

Institutional Investors carry out Operational Due Diligence (ODD) on each asset manager they invest with, and each fund that they invest in. ODD is an important part of the investor allocation process. Typically, an ODD team will have the right to “veto” an investment. The ODD process involves a desktop review of documents collected in advance, onsite visit(s), and follow up verifications. Institutional investors expect a robust control environment even in small and emerging managers; although there is recognition that controls may look different in small versus large managers.

This SPARK memo outlines how managers can best prepare for institutional investor ODD and includes:

• Before the Meeting: Documentation requests and the level of detail required.
• During the Meeting: Time required, who should attend, system and process walkthroughs and office tours.
• After the Meeting: Background checks, service provider verification and additional follow ups.

ODD teams at different institutional investors may have different priorities and as such may ask for differing levels of documentation or ask different questions; however, this memo should help provide the basis for preparation for most due diligence meetings. There may be some instances where a small or emerging manager is not able to provide some of the required documentation or information. Some of these instances are detailed below along with advice on how to provide the investor with comfort that controls are still in place.