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Jerry Swank Potential investors are spending significantly more time on operational due diligence. In the wake of the financial crisis of 2008 and hedge fund failures Amaranth, funds have seen operational due diligence questionnaires expand into hundreds of pages - and many with increasingly personal questions. Are investors asking too much of funds and fund managers or is this a necessary step in adequately addressing risk?
"When a fund of funds or family office came in to see us in 2004 or 2005, they would spend 90% of their time on investment assets, investment process, investment people and then they would ask you who is your prime broker, who is your law firm and that was kind of it. Today, it is completely the opposite: 70-80% is about operational due diligence not only transparency, but who are all of your service providers? You have to have independent people," Jerry Swank, founder of Swank Capital, said of the trend at the latest Opalesque Texas Roundtable.
The trend was echoed by other attendees at the event who cited an increased need for middle and back office infrastructure to effectively manage the administrative and time requirements to comply with such lengthy operational due diligence requests.
Swank added "the process has gotten dramatically longer and dramatically more personal. They ask questions like what I did on August 15, 1982 at 2:30 in the afternoon, it has gotten to that state... We had to hire two people just for this."
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