The second annual Deutsche Bank Hedge Fund Consulting Group operational due diligence survey, which polled 68 investors representing more than $2tn (€1.6trn) in combined assets, found that almost three-quarters ranked compliance and regulatory frameworks as their top priority for 2013.
Some four-fifths of respondents have already established dedicated operational due diligence (ODD) departments. There was evidence that such groups wield considerable power, with 70% of ODD teams holding “explicit veto authority” in the investment decision-making process.
Key considerations include independent fund governance and proper segregation of duties, while fees are increasingly coming under the spotlight. Most respondents had “little tolerance” for expenses such as non-research-related travel or employee compensation being charged to the fund.
“Hedge Funds have seen impressive net inflows from institutional investors this year and operational due diligence teams are now a critical part of the investment decision process,” wrote Daniel Caplan, the European head of global prime finance at Deutsche Bank.
