Assessing Manager Operational Risk: Up-front Analysis Pays Off on the Back End
When considering a new investment relationship, investors typically begin with the investment strategy. And substantial attention is given to other areas such as governance, fee structure, sourcing capabilities, reputation, track record and the like.
However, investor due diligence often ends before in-depth consideration of areas such as asset and property management. And due diligence rarely includes a “deep dive” into back office operations such as accounting, compliance and information technology. We believe institutional investors are overlooking these key operational aspects in their manager due diligence.
There is a substantial risk that inefficiencies or errors could occur in these “middle office” and “back office” functions that would negatively impact investment returns due to lost revenues or greater than required costs. The best managers recognize this operational risk and generate additional positive returns by identifying risk areas and mitiga