Due Diligence Considerations for a Remote Workforce (Part 2: Fund Managers)
Laven Managing Director and Head of Investment Product Due Diligence George Wood shares a few insights into performing operational due diligence reviews in light of the COVID-19 pandemic.
Posted on 9 Apr 2020
In recent weeks we have witnessed unprecedented change in the way businesses operate. Even as one of the more fortunate industries that can operate with the majority of people working from home there are obviously significant changes to the way we function.
As there is no set timeline in place for how long the current situation will continue, Laven has adapted its ODD practices and how we undertake investment and operational due diligence reviews now the onsite portion of the review is no longer possible. Having already conducted a number of remote reviews with fund managers, some more easily than others, we thought we should share a few insights and learnings for fund managers to consider.
1. Be transparent and human
At the outset, it is important to consider that everyone is under increased stress during these uncertain times. Remote due diligence reviews are less fluid than reviews undertaken in person and require more detailed planning. It is likely that investors may ask more questions about procedures and controls that may be in flux due to remote working. Managers should be transparent about what is in progress and understand that investors are also adapting to the information that they can receive and evaluate. It is an opportunity for collaboration and sharing ideas.
2. Reconsider what documents you can share electronically.
It is important for fund managers to explore what information they can share and how they can share it. While NDAs help, firms should also explore the range of permission-based document sharing solutions that have the option to grant read-only access and/or the ability to expire access on documents after a specified period of time. Due Diligence reviews often require that we briefly review and verify that a document exists. Implementing a read-only solution or controls that remove access after a specified amount of time should more than satisfy the “trust but verify” approach many investors utilise.
3. Share screenshots and summaries
An on-site visit often reviews systems and controls (e.g. pre-trade allocation, pre-trade compliance). In many cases, video conferencing can still provide these verifications. If an issue arises or a demo is not possible, inquire if the investor request can be satisfied through a screenshot or series of screenshots. The current crisis perhaps forces us to consider different kinds of disclosure that may even help improve efficiency in the long run.
4. Revisit policies and document the “real-life” testing
Remote working for extended periods of time can impact business continuity, information security, and other compliance policies that are designed for a physical office. Be transparent about the policies impacted and whether they can or have been updated. Determine what can be memorialised and learnt from having all or a majority of your staff work remotely. Again, be transparent in the findings, what has worked and what are you are working to improve. Investors should not penalise you for learning and adapting during these times and will be far more appreciative of the candour and transparency.
5. Supervision and risk management
Investors should be interested in how supervision and compliance procedures have adapted during the extended remote working period. Regulators around the globe will continue to have supervision and risk management requirements. Expect investors to inquire and ask for evidence, for example, as to whether a risk review has been conducted, that the rules around personal trading are enforced, and, whether any enhanced supervision is being implemented by compliance.
Lastly, operational due diligence is about gaining comfort with the team and the organisation that will manage an investor’s allocation. The remote working environment has commingled our personal and business environments, particularly through video conferencing. Be true to your business and yourself during these uncertain times.