Rothstein Kass Brings Together Leading Hedge Fund Professionals to Create New Operational Due Diligence Best Practices

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Investment Managers, Institutional Investors Deliver Insights to Improve ODD Process

In an effort to help establish a better framework for the hedge fund operational due diligence (ODD) process, Rothstein Kass (, a leading national professional services firm, today unveiled a set of “best practice ODD guidelines.” Designed to improve the ODD process for both managers and investors, the guidelines are the result of a two-day working group where investment managers, institutional investors and a team of Rothstein Kass experts engaged in open discussions to identify the inefficiencies in the ODD process and create best practice guidelines for the industry. The ODD guidelines are the first formal publication from the Rothstein Kass Institute™, a thought leadership “think tank” designed to provide actionable information and insights to the alternative investment and broader financial services communities.

“Despite its heightened focus in the last five years, there is still a lot of inefficiency and frustration surrounding operational due diligence for both investment managers and investors,” said Howard Altman, Co-Managing Principal at Rothstein Kass and Principal-In-Charge of the Firm’s Financial Services Practice. “Recently we have seen serious examples of the critical need for thorough operational controls and evaluations, with Hurricane Sandy testing disaster recovery and business continuity plans, and new allegations of insider trading both highlighting the importance of having a ‘culture of compliance’ within a firm. This working group uncovered some of the key disconnects that cause investors and managers the most pain in the operational due diligence process.”

Added Altman, “while the group was keenly aware that there is no one-size-fits-all approach, we do believe that we have highlighted areas that investors can improve during the operational due diligence process, as well as the areas within a manager’s organization which are likely to draw attention. Obviously, we hope these recommendations will encourage an ongoing dialogue that will lead to continued improvements in the ODD process.”

Participants widely agreed that the lack of standardization, communication and preparation for meetings were major impediments to an efficient ODD process. Investor participants revealed that some investors may be constrained by a lack of resources, which can lead to a fragmented process and redundancies or superfluous work by the managers when they become involved. Another roadblock identified is the difficulty of managing sensitive document requests and disclosures, as both sides struggle with perceived conflicts of interest and materiality.

“Our research and ongoing dialog with clients suggests that the due diligence process timeline continues to lengthen, which can be frustrating to managers and investors alike. Getting both investors and managers to engage in open discussions is critical to recognizing and addressing operational due diligence inefficiencies and streamlining the overall due diligence process,” said Meredith Jones, Director, Rothstein Kass Business Advisory Services. “The recommendations that our working group developed are both actionable and practical for managers and investors of almost any size. Furthermore, a manager or investor need not alter their entire process to reap benefits. Adopting one or more of these practices should create immediate incremental improvements in the ODD process, allowing both managers and investors to better leverage their time.”

After uncovering some of the key impediments in the ODD process from both the manager and investor perspectives, the working group identified a set of best practice guidelines to improve communication and meeting preparation procedures used by both investors and managers. Some of the suggested recommendations included:

  •     Providing a complete and standardized documentation package
  •     Setting meeting agendas in advance to allow for efficient preparation
  •     Leveraging available information and composing materials with standard answers to commonly asked questions
  •     Holding operational due diligence days
  •     Asking the right question to the right person.

If you would like to participate in a future Rothstein Kass facilitated working group, or if you have thoughts or comments you would like to share, please contact: Meredith Jones at

About Rothstein Kass:
Founded in 1959, Rothstein Kass is a premier professional services firm serving privately-held and publicly-traded companies, as well as high-net-worth individuals and families. With more than 1,000 professionals, the firm provides accounting, advisory, auditing and tax services, as well as a full array of integrated services such as litigation and forensic consulting and concierge and tax accounting to clients across industry spectrums and in all stages of development. Rothstein Kass is widely recognized as a leader in the financial services space, consistently ranking among the top CPA firms serving the Hedge Fund, Private Equity, Venture Capital, Broker Dealer and Family Office segments.

At the core of Rothstein Kass’ remarkable success is a commitment to hiring, developing and retaining employees with the same entrepreneurial spirit that permeates the sophisticated business and financial services communities the firm serves.

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Kathleen O’Toole
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