London-based perfORM blazes an in-person ODD trail

On a sunny summer day last month in London, a newish due diligence firm founded by two industry vets conducted what they believe to be the first on-site operational due diligence visit since the pandemic began. The pair cycled to the offices of a newly launched equity long/short hedge fund manager. The questions were very much the same despite the unique ‘new normal’ backdrop, according to Quentin Thom, who is co-head at perfORM Due Diligence Services, the operational due diligence business line at Delta Capita Group, a global provider of managed services & fintech solutions. He and James Newman founded their own business last November after serving as Deutsche Bank’s EU head of prime brokerage hedge fund consulting and Barclays Wealth global head of ODD, respectively. “We see operational due diligence as operational risk mitigation,” said Thom, who sees his firm offering a geographic advantage in providing third-party ODD for firms in the U.S. that are now unable to travel due to the coronavirus. When the virus emerged in the spring, perfORM was six clients in, including large public pensions, and endowments in the U.K., a family office and fund governance group. “We felt people would find it difficult to travel to the U.K. and managers would be working out of the office,” recalled Thom. Either way they knew they would have to switch up how they had done things previously. In a flash poll recently conducted by perfORM found that half of investors indicated they required an onsite visit before investing. According to Thom, respondents suggests both an element of discretion, but also that they are still pondering how to address the challenges created by the pandemic such as travel restrictions and quarantine measures. Thom and Newman have put in place a virtual ODD review process, which includes accessing a data room for all manager and fund level documentation and arranging calls with key service providers. Then came the in-person portion, which had to wait until late August. Observing social distancing guidance, the pair accessed the manager’s building and offices and used hand sanitizer. The ODD specialists rolled up their sleeves and went to work addressing key items raised by the virtual review process. They held key staff interviews, obtained documentation and policies only available onsite, performed a walk-through of IT systems and the life of a trade in addition to touring the premises. “It was really good to do that review,” said Thom. He added that like all reviews they do, clients of perfORM will have access to that material once it is completed. For overseas investors, such services may be crucial to help them move forward before they can board a plane again. According to Thom, a new client from the U.S. just signed up for the team’s services and now a series of U.S. groups are asking to do agreed upon ODD locally on their behalf and on all the U.K. and European investments for the next year and another group using them to vet exclusively London-based firms. The team's aim is to provide cost effective and flexible in scope due diligence across private markets including private credit, real estate, infrastructure, hedge funds, long-only and retail investment managers and funds. To the degree they can bike to their meetings or serve overseas investors, the ODD solution also provides a way for all to reduce their carbon footprint. Either way, a new normal is still a work in progress. In a separate flash poll of London-based investment managers, most said they would welcome onsite visits from investors in the fourth quarter. Of those that said they would accept onsite visits, 80% would limit onsite visits to investors from jurisdictions/countries that are not under any quarantine or travel restrictions. The question remains though how many firms will have fully opened their offices. Of the firms surveyed by perfORM, 33% said they expect less than half of the team to be back in the office by Q4. Another 33% say 51%-75% will be in the office, while the remaining 33% expect up to 100% of staffers to be back in the office. Only time and science hold the answers for how many investors will require onsite visits and, more importantly, how many such visits can be done before a vaccine becomes widely available.

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