For Institutional Investors and investment consultants, the Operational Due Diligence (ODD) process is a crucial component of assessing investment propositions and ultimately selecting the best investment managers. However, the traditional ODD process is riddled with inefficiencies that can prolong the process and pose various risks to clients' investments. As the regulatory focus on investor protection and transparency increases there are several reasons why you should consider digitizing your ODD process.
Elevate the value of due diligence
Take the due diligence function from reactive to proactive by quickly digitizing best practice templates as soon they are released. When both qualitative and quantitative information is turned into digital data, analytics can be used to find patterns and create benchmarks.
Improve manager communication and collaboration
Allocators and managers are both working towards a similar goal; to achieve a frictionless exchange of critical data that will allow the relationship to prosper. By digitizing the process and providing user friendly platforms that make it easy to request and provide data, allocators will foster greater collaboration with managers.
Drive huge productivity gains
ODD teams report improvements of around 5x in productivity levels following the move to a digitized ODD process. An entire quarter’s worth of work can be reduced to 3 weeks. The efficiencies gained by requesting, gathering, flagging, and analyzing data automatically and at scale, allow ODD teams to focus on other more meaningful tasks.
Build happier, more engaged ODD teams
It is no secret that teams that are given high quality digital tools that are easy to use and allow them to work smarter, not harder, can enjoy lower levels of stress and better staff retention.
Reduce risk
People are an organization’s biggest asset, but also, its greatest risk. Automation removes or significantly reduces the human element from data collection and classification tasks and reduces the risk posed by human error.
How to Digitize Your ODD Process
What is the primary purpose of the ODD investigations? Visualizing the end result and working backwards ensures the correct outcome. What reports do the key stakeholders need and in what format? Summary data, manager fact sheet, in-depth reports, qualitative data, quantitative data?
How will the results be analyzed? A digital due diligence platform with business intelligence capabilities can identify issues, trends, and recommendations. Results are presented via dashboards using charts and graphs to allow for speedy identification of red flags or areas of concern.
Utilize what you have
There are a plethora of best practice DDQ templates that have been designed to meet the needs of investors and consultants and make it easier for fund managers to provide the right information. AIMA, ILPA, ICI, PRI and SBAI are among the most downloaded and freely available DDQ resources. Many allocators will be looking for ways to digitize the data held within completed DDQs and to start making sense of it quickly.
A digital platform should:
- Automatically ingest completed DDQs from managers
- Standardize response data across the manager portfolio
- Analyze large amounts of data to identify trends and red flags
- Present data in a user-friendly dashboard
Think beyond the manager or GP
To achieve the full benefits digital transformation can bring, firms should consider moving beyond the traditional due diligence questionnaire data, to include qualitative data from varied sources.
- Draw in additional findings from the research or investment teams, or third-party data from external data providers such as Preqin or eVestment and view it through a single pane of glass.
- Add emails, research notes and findings stored in Outlook or SharePoint and present the full manager picture.
- Include data from government sources, such as the SEC Form ADV.
By digitally transforming the manager ODD process, data ingestion processes can be automated to reduce administration time, improve data accuracy, and minimize unnecessary risks and complexity.
Enjoy closer relationships with your managers
Invite managers to respond via a simple, web-based interface. The ODD process provides assurances to allocators that their manager portfolio is robust and within acceptable risk parameters. By digitizing the process, allocators can transform the experience for managers, reduce the time spent completing repetitive tasks and improve the accuracy and return rate.
Prove the value of a digital platform with a proof of concept
Time is scarce and an evaluation process can seem daunting. A proof of concept offers a quick way to fully understand the benefits of a digital platform. As each client and every ODD process is unique, for a new digital platform to be effective and adopted by the team it should account for existing processes. A customized proof of concept will show how easily the platform can be configured to meet the changing needs of ODD teams and demonstrate the ways it can improve the investment process. Don’t waste time on generic trials, insist on a personalized proof of concept.
The Future of ODD
There is an increasing emphasis on data-driven insights, and digital ODD enables you to harness the power of data. With advances in artificial intelligence (AI) and machine learning (ML), digital ODD can become even more sophisticated and predictive. For example, with ML algorithms, digital ODD can identify potential risks and red flags even before they occur. Generative AI could be used to create more user-friendly questionnaires or improve report outputs. Additionally, digital ODD can be integrated with other systems, such as external data feeds, CRM platforms or portfolio monitoring systems, to provide a more holistic view of risk.
Once data has been set free from within the confines of a siloed platform, the possibilities really are endless.