The Rise of Operational Due Diligence

Institutional investors increasingly are focused not only on the returns generated by private equity managers, but on the soundness of the firm’s infrastructure. With each passing day, it seems that the legal, regulatory and competitive environment in which private capital firms do business becomes more complex, thereby elevating the risks faced even by firms that have shown an ability to generate strong returns. This elevated awareness of risk has given rise to operational due diligence (ODD), a painstaking vetting demanded by most LPs that looks into the business integrity of private capital firms. Privcap spoke recently with two ODD experts from Cambridge Associates and Gen II Fund Services on the topic. This report presents an edited transcript of that conversation.