Operational Due Diligence and Fund Documentation

Free CAIA Level II lesson in Due Diligence and Selecting Managers. 31 min read, ~4,582 words.

Operational risk has three sources (operational errors, agency conflicts, operational fraud) and is controlled through prevention, detection, and mitigation. Investors mitigate operational risk via roughly 40-fund diversification, informed ODD, and a sharper risk/return profile; perverse incentives push managers to lock in gains or gamble to recoup losses. The four noninvestment...

What this lesson covers

• Content
• Example 1
• Example 2
• Common Mistakes
• Check Your Understanding
• Exam Shortcuts

Learning objectives

• fund selection lifecycle
• return persistence
• manager selection process
• screening questions
• historical performance
• manager selection sourcing
• fund culture
• investment monitoring
• market loss failures
• leverage behavioral
• trading tech crises
• fraud failures
• tail event lessons
• investment dd overview
• investment strategy mandate
• implementation risks
• custody valuation
• risk alert third party
• portfolio risk review
• warning indicators
• ops risks remedies
• key operational activities
• cash mgmt movement
• external parties principals
• fund compliance
• onsite visits meta risks it
• emerging managers
• funding applying concluding
• digital asset dd
• document collection
• manager investor relationships
• structural review
• liquid fund terms
• side letters
• ppm
• fund fees expenses
• audited financials
• bcp dr insurance

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