Operational Due Diligence: What Investors Should Know

Featured Guests

Michael Lavine

Co-Founder, Lex Pro Research

With nearly three decades in investigative research, Michael LaVine specializes in in-depth background checks and operational investigations. A licensed private investigator with expertise spanning international cases, regulatory compliance, and insurance investigations, he brings robust experience in uncovering critical risk signals that traditional due diligence often misses.

Michael Merrian

Founder, Shadmore Advisors

A veteran of institutional investor due diligence, Michael Merrian has overseen operational assessments for funds with assets exceeding billions. Former head of operational due diligence at a major fund of funds and pioneer in in-house OD programs, Michael’s thought leadership drives best practices in ensuring operational transparency and governance across diverse alternative asset classes.

Key Insights From This Episode

Defining Operational Due Diligence (OD)

OD focuses on governance, controls, compliance, service providers, operational risks, and back-office mechanisms essential for fund integrity — distinct yet complementary to investment due diligence.

The Critical Role of People and Background Checks

Evaluating the integrity, history, and behavior of key personnel is paramount. Background checks reveal risks invisible in financial reports, helping investors foresee potential future actions.

Confirmations Trump Self-Reports

Triangulating data by verifying fund assets, service providers, and governance processes with third parties, rather than relying solely on manager disclosures, mitigates blind spots.

Evolving OD Landscape Post-2008

Operational due diligence now spans all alternative asset classes, with heightened regulatory expectations and wider adoption. It’s no longer optional but integral to responsible investing.

Nuances of Operational Risk Assessment

Recognizing red flags in firm structure, management turnover, regulatory compliance, and financial stability informs risk calibration. Continuous monitoring beyond the initial investment is critical.

Technology and Future Outlook

Digital data proliferation and AI tools promise to enhance OD efficacy, but human judgment remains irreplaceable. Virtual and hybrid due diligence approaches continue to evolve post-COVID-19.