While investment due diligence may be the first step in an allocator’s decision-making process, an equally critical and sometimes underestimated component is Operational Due Diligence (ODD). Your investment thesis may be compelling, performance trending in the right direction, and capital ready to be deployed, but one question allocators are asking is: Are you running your fund management company like a business built to last?
Before the financial crisis of 2008, ODD was largely a check-the-box formality. Questions were limited to, Do you have an auditor? Who is your legal counsel? Which administrator do you use? Basic signals were enough to inspire confidence.
Those days are gone.
Today, operational scrutiny is deeper, more sophisticated, and far more telling. Investors are no longer just kicking the tires, they’re lifting the hood, running diagnostics, and assessing whether a manager has built a resilient operating framework. Lengthy due diligence questionnaires, business continuity plans, cybersecurity protocols, background checks on key personnel, audited financials, and counterparty risk evaluations are now standard. ODD has evolved from a procedural review into a stress test of a manager’s operational maturity.
For emerging managers, that first institutional ODD review can feel daunting, but it doesn’t have to be adversarial. In fact, when approached with the right mindset, the mindset of doing it right the first time, it becomes a catalyst for building a scalable, investor-ready platform. An initial ODD process may expose gaps, but it also provides clarity. It’s not always a dealbreaker; often, it’s an opportunity to demonstrate responsiveness, professionalism, and a commitment to institutional standards.
Strong performance may open the door, but operational excellence keeps it open.
Running a fund is more than generating returns, it’s about instilling confidence through thoughtful infrastructure, disciplined processes, and trusted service partnerships. The most successful managers don’t wait for investors to point out weaknesses, they invest early in doing it right, aligning people, processes, and technology before they’re under the microscope.
I often say that allocators conduct due diligence looking for reasons to say “no.” Don’t let avoidable operational flaws be that reason. Build the business the right way the first time, and ODD becomes a validation of strength rather than a source of friction. When operations are sound, managers are free to focus on what they do best: generating returns and raising capital with the confidence that their platform is built to support growth, not strain under it.
When the puzzle pieces are thoughtfully placed from the outset, momentum follows.