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Hedge fund and private equity investors to focus 2020 due diligence efforts on alternative data compliance

Thursday, January 16, 2020
Opalesque Industry Update - Corgentum Consulting, a provider of operational due diligence reviews and background investigations, announced the results of a new investor and operational due diligence (ODD) analyst survey.

83% of those surveyed indicated that they anticipated continuing to increase the resources allocated to analyzing compliance procedures surrounding alternative investment managers use of third-party research including expert networks. In particular, investors indicated that a key focus in 2020 will be on the security and privacy considerations surrounding hedge funds and private equity managers use of alternative data.

78% of participants indicated that they will for the first time begin incorporating a review of fund manager uses of alternative data. Furthermore, an 96% of those that already review alternative data anticipated expanding their due diligence efforts in this area. Key motivations for this focus cited by investors include

- Increased fund manager use of alternative data in alpha generation

- Strong regulatory push on data security and integrity such as Europe's General Data Protection Regulation (GDPR)

- Increased availability and complexity of big data sets related to financial transactions, sensors, mobile devices, satellites, social media, biometric, geo-location and exhaust data

These findings are also in-line with the recently released 2020 Examination Priorities of the US Securities and Exchange Commissions Office of Compliance Inspections and Examinations.

"Investors want fund managers to utilize alternative data to enhance their investment research process. Corgentum's survey results show that investors also increasingly recognize that with the use of these new data sets comes accompanying operational, compliance and regulatory risks. Allocators are now beginning to tailor their due diligence processes and resources towards analyzing this growing research avenue," said Jason Scharfman, Managing Partner of Corgentum Consulting.

The survey was conducted as part of the Corgentum webinar series hosted by Jason Scharfman, a leading expert in operational due diligence and compliance for hedge funds and private equity. He is also the author of the newly released Private Equity Compliance: Analyzing Conflicts, Fees, and Risks (Wiley Finance) available on Amazon. The book serves as a compliment to the author's previous book Hedge Fund Compliance: Risks, Regulation, and Management.

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