Operational Due Diligence (ODD)

ODD is the allocator review of a manager’s operational integrity—governance, controls, compliance, valuation processes, service providers, cybersecurity, and business continuity. ODD exists because investment returns can be destroyed by operational failure: weak cash controls, inaccurate valuations, conflicts, reporting breakdowns, or resilience gaps.

From an allocator perspective, ODD is often a gate. High conviction on strategy does not survive weak operational infrastructure.

How allocators define ODD risk drivers

Allocators assess:

• Segregation of duties: who can initiate/approve wires and reconcile accounts
• Valuation governance: policy, oversight, independence, escalation
• Service providers: admin/audit quality, independence, stability
• Compliance maturity: testing, documentation, regulatory posture
• Conflict controls: allocations, side vehicles, related-party policy
• Reporting reliability: timeliness, transparency, data integrity
• Cybersecurity & BCP: incident response, DR testing, continuity plan
• Governance ownership: who is accountable for controls and why

Allocator framing:
“Do controls prevent bad outcomes—or just describe them after the fact?”

Where ODD matters most

• strategies with valuation discretion
• complex vehicles (SPVs, side pockets, multiple funds)
• managers scaling rapidly
• stressed markets where marks and liquidity pressure rise

How ODD changes outcomes

Strong ODD:

• accelerates approvals and reduces late-stage blockers
• increases long-term allocator trust and re-up probability
• reduces operational blow-up risk in stress events

Weak ODD:

• triggers delays and heavier side letter demands
• creates silent “no decision” outcomes
• increases perceived reputational risk for institutional LPs

How allocators evaluate ODD discipline

Conviction increases when managers:

• have documented procedures matching actual workflows
• show evidence of testing (BCP/cyber drills, compliance reviews)
• maintain stable, credible service providers
• provide reporting samples that reconcile cleanly

What slows allocator decision-making

• DIY controls with no documentation
• unclear valuation oversight
• weak wire approval controls
• provider churn without explanation

Common misconceptions

• “ODD is for big funds” → it’s for any manager taking institutional capital.
• “Admin + audit = safe” → governance and controls still matter.
• “We’ll improve ODD later” → allocators price operational risk immediately.

Key allocator questions during diligence

• Who can move cash and what approvals exist?
• How are valuations set, reviewed, and challenged?
• What testing has been done for BCP/cyber and when?
• Who are service providers and what is their scope?
• How are conflicts and allocations governed across vehicles?