Operational Due Diligence Top Concern For Hedge Fund Investors - Survey

Stephen Little Reporter London 2 July 2013

Operational Due Diligence Top Concern For Hedge Fund Investors - Survey

Almost three quarters of hedge fund investors rank compliance and regulatory framework as the top priority for 2013, according to a new survey by Deutsche Bank.

Deutsche Bank’s second annual operational due diligence survey polled 68 institutional investor entities globally, representing over $2.13 trillion of total assets with a hedge fund allocation in excess of $724 billion.

The survey revealed that operational due diligence has continued to grow in importance with 70 per cent of ODD teams now having explicit veto authority in the investment decision making process, which was exercised in almost 10 per cent of manager reviews.

In a further sign of the influence ODD teams now hold, 63 per cent of investors will not reconsider investing in a fund previously vetoed by the ODD team.

The survey also found investors are placing greater emphasis on the depth and breadth of their ODD team. Investors conduct an average of 50 manager reviews a year while 80 per cent of investors have a dedicated ODD team.

In other findings, independent governance is expected with the majority of respondents preferring at least three directors on the board including two independent directors. Nearly a quarter vetoed an investment due to lack of independent governance.

"This survey demonstrates the critical importance of operational due diligence to hedge funds as the industry experiences an ongoing evolution. Our results show that these teams have advanced in sophistication and provide valuable insights as to how managers can prepare for the road ahead," said Pam Kiernan, global head of hedge fund consulting at Deutsche Bank.

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