The Importance of Ongoing Monitoring for Institutional Allocators

Dasseti and ORC have joined forces to delve into why ongoing monitoring matters and why combining sophisticated automation with seasoned Operational Due Diligence (ODD) professionals, whether internal or external, is the best strategy.

The Importance of Ongoing Monitoring

Regular monitoring is a must to protect investments from unexpected risks. Markets and fund managers are always changing—strategies shift, market conditions evolve and unexpected events happen.

Continuous oversight helps you:

• Spot Style Drift: Make sure fund managers stick to their stated investment strategies.
• Detect Early Warning Signs: Identify underperformance, increasing volatility or operational red flags early.
• Assess Risk Management: Keep tabs on how managers handle portfolio risks, counterparty risks and operational risks.
• Monitor Milestones: Assess progress towards the implementation of any remediation recommendations made in the initial ODD.

Monitoring also ensures fund managers comply with specific investor mandates, including investment restrictions, ESG criteria and regulatory requirements. Combining ongoing ODD monitoring with IDD monitoring allows allocators to:

• Review Performance Regularly: Keep track of updates and benchmark managers against peers.
• Ensure Fee Alignment: Confirm fees are in line with performance and market standards.
  
  

The Role of Sophisticated Automation in Monitoring

Historically, monitoring managers has been a manual and resource-intensive task for allocators, often stretching internal teams thin. Automation can ease this burden, but as we’ll discuss, automation alone isn’t enough for robust ODD. 

Wissem Souissi, CEO of Dasseti said,

“Dasseti’s overarching goal is to make clients’ lives easier by automating manual tasks. The time saved can then be spent doing the aspects of the job that is more interesting, more important and ultimately more profitable for the business. Automating processes in the monitoring workflow means that due diligence teams can spend their time performing deep dives into specific issues or building stronger relationships with manager investment teams.”

Automation offers two obvious benefits:

1. Efficiency: It reduces the heavy lifting for allocators. Systematic questionnaires, automated reminders and insights into managers’ progress let teams focus on more valuable activities.
2. Instant Insights: Data feeds directly into the system, enabling powerful analytics. Dashboards highlight high-risk areas, filter manager data by geography, asset class, and other points, and drill down into managers needing attention during market events.

Automation enhances the efficiency and scalability of monitoring. Key benefits include:

• Resource Optimization: Free up staff for strategic tasks.
• Scalability: Handle large data volumes and multiple managers without needing more staff.
• Consistency: Ensure processes are conducted uniformly, minimizing human error and bias.
  
  

The Importance of Experienced Due Diligence Professionals

Despite the benefits of automation, a seasoned human element is irreplaceable. Many allocators have internal due diligence teams, but they often face capacity constraints. Using external consultants alongside automation is a cost-effective way to overcome these limitations. 

Experienced due diligence professionals bring:

• Deep Knowledge: They understand investment strategies, risk management and operational processes, making informed judgments.
• Contextual Understanding: They interpret data in the context of market conditions, regulatory changes and industry trends.
• Qualitative Insights: They assess factors like team integrity and competence, which are crucial for comprehensive evaluations but hard to quantify.

Combining Automation and Human Expertise: The Optimal Approach

Combining sophisticated automation with experienced due diligence professionals creates a robust monitoring framework. Nigel Morriss, CEO of ORC says,

“Due diligence needs to move with the times and embrace automation, but it cannot rely on it. At ORC we apply a qualitative overlay tailored to our clients delivering value above and beyond the sophisticated technology.”

We believe this approach is optimal as it allows for:

• Complementary Roles: Automation handles data-heavy tasks; professionals focus on analysis and qualitative assessments.
• Enhanced Decision-Making: Accurate, timely data from automation helps professionals make informed decisions.
• Adaptive Monitoring: Automation flags potential issues; ODD professionals investigate and address them.
  
  This can help allocators enhanced decision-making through timely and accurate data that they can be confident has been validated bringing just the real risks to the attention of the internal teams. 
  
  

Now is the time to Review your Allocate and Forget Approach

Regular ongoing monitoring of investments into external fund managers is not just important; it is indispensable.

Protecting capital, managing risk, ensuring compliance and enhancing performance are paramount objectives that require vigilant oversight. By leveraging a combination of sophisticated automation and experienced due diligence professionals, institutional allocators can create a robust and effective monitoring framework.

This integrated approach ensures comprehensive, efficient and proactive oversight, ultimately safeguarding investments and driving superior long-term performance.

Get in touch with Wissem or Nigel to discuss the ORC and Dasseti approach in more detail.