Investors re-emphasise compliance and cybersecurity during hedge fund and private equity operational due diligence, says Corgentum Survey
Over three-quarters (79 per cent) of respondents to a new investor and operational due diligence (ODD) analyst survey by Corgentum are spending more time analysing compliance and regulatory risks in funds, compared to last year.
Recent key areas of focus during fund manager due diligence cited include the 2019 examination priorities announced by the United States Securities and Exchange Office of Compliance Inspections and Examinations (OCIE), Europe's General Data Protection Regulation (GDPR), and Brexit uncertainty. Additionally, respondents also indicated a 59 per cent increase in the time spent analysing cybersecurity related issues including the ongoing risks of phishing scams, email spoofing and social engineering attacks.
Some 82 per cent of those surveyed stated that significant increases in the scope, complexity and depth of ODD analysis has continued to add substantial challenges to the process over the last year. However, 79 per cent of respondents admitted that they have not increased operational due diligence resources to sufficiently keep up with these new challenges. Similarly, only 11 per cent of ODD analysts surveyed stated that felt they had enough time or resources to thoroughly monitor operational risks on a post-investment basis. Additionally, 68 per cent surveyed stated that their background investigations on fund managers could be more rigorous.
"The data shows investors are being tasked with more complex operational due diligence challenges and that is straining existing resources. As the compliance and technology environments for hedge funds and private equity continue to evolve, allocators must consider how they will devote more resayssource toward operational due diligence to evaluate and monitor these risks going forward," said Jason Scharfman, Managing Partner of Corgentum Consulting.
The survey was conducted as part of the Corgentum webinar series hosted by Jason Scharfman, a leading expert in operational due diligence and compliance for hedge funds and private equity. He is also the author of the newly released ‘Private Equity Compliance: Analyzing Conflicts, Fees, and Risks (Wiley Finance)’. The book serves as a complement to the author's previous book Hedge Fund Compliance: Risks, Regulation, and Management.