Key Takeaways
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Operational due diligence for secondary and co-investments requires a tailored approach that addresses limited access to general partners, outdated fund materials and incomplete reporting.
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A refined operational due diligence process that incorporates a targeted risk review as well as regulatory assessments, financial statement analysis and counterparty confirmations can help investors evaluate complex transactions more effectively.
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Technology-enabled due diligence strengthens risk assessment for secondary and co-investment transactions by improving efficiency, enhancing background screening and supporting secure information exchange.
Evaluating operational risks for complex transactions such as secondary and co-investments presents a distinct set of challenges compared to primary fund commitments. Limited access to general partners (GPs), outdated historical fund materials and uncertainty around a fund’s operating history can all obscure critical insights.
At PKF O’Connor Davies, our deep bench of experienced operational due diligence (ODD) professionals understands these complexities. We apply specialized diligence processes that adapt to the challenges presented, leveraging both technical expertise and practical judgment. Our tailored approach addresses the unique risks of secondaries and co-investments, ensuring you have the insight and support needed to protect your interests, helping you make informed decisions and providing actionable solutions.
Key Considerations for ODD
Unlike primary fund commitments, secondary and co-investments often come with significant information gaps. Access to GPs and counterparties may be restricted, and key fund documents, policies and operational materials are often unavailable or outdated. ODD teams are left piecing together a picture from legacy information, fragmented reporting and structures that may have changed since the original investment – often within condensed timeframes.
The complexity increases when portfolios include multiple vintages or co-investments alongside fund interests. This raises questions about consistency of controls, transparency of underlying assets and reliance on third parties. These realities make secondary ODD fundamentally different: it requires an adaptive, investigative approach that balances technical rigor with pragmatic judgment.
A Tailored ODD Approach
Traditional ODD methods must be refined to address the nuances of these complex investments. A thorough process should account for the risks that matter most, managed end-to-end to ensure no detail is overlooked.
Key elements typically include:
- Comprehensive review of diligence materials
- Tailored short-form questionnaires
- Regulatory status and filings review
- Counterparty engagement confirmation
- Audited financial statements review
- Comprehensive background checks
- Litigation and sanctions screening
- Deficiency remediation/recommendations
- Summarized reporting
- Technology-enabled analysis
This approach helps create a clearer picture where information is incomplete and ensures investors can make decisions with greater confidence.
Why Technology Matters
Technology is a critical component in addressing the growing complexity, speed and volume of information required for analysis in secondary and co-investment transactions. At PKF O’Connor Davies, our approach to ODD is enhanced by partnerships with best-in-class technology providers to create a comprehensive, digitized, end-to-end due diligence and data analytics program. Platforms that interact directly with GPs create a more efficient, “GP-friendly” exchange of information while supporting investors’ ability to transact quickly and securely.
Our approach is further strengthened by advanced solutions that power multi-layered GP and key person background screening.
These customizable tools are designed to identify potential risks, enhance transparency, and deliver actionable insights tailored to each client’s needs. Together, these technology integrations create a robust, scalable framework that allows us to deliver a more agile, data-driven, and thorough ODD process, ultimately giving clients the clarity and confidence they need to seize investment opportunities.
The Importance of Choosing the Right Advisor
Secondary and co-investment transactions present unique complexities that demand more than a one-size-fits-all approach. Navigating these challenges requires advisors who understand how best to evaluate the associated risks, provide specialized guidance and offer timely, actionable solutions.
Our team brings deep expertise and a fully customizable approach, tailoring the due diligence process and reporting to your specific needs, ensuring you receive the exact level of detail and analysis required to support confident investment decisions.
Contact Us
If you have any questions about our approach or would like to discuss how we could help you, please reach out to your PKF O’Connor Davies client service team or a member of our dedicated Operational Due Diligence team below:
Helen Rexwinkel
Director
hrexwinkel@pkfod.com | 203.705.4143
Matthew Rowe
Director
mrowe@pkfod.com | 203.323.2400