Ivy Asset Management has created a separate group dedicated to operational due diligence of hedge fund managers. As part of the risk management paradigm, the Operational Due Diligence Group also reports independently of the Global Manager Research and Portfolio Management Groups to provide an unbiased and objective perspective.

The Operational Due Diligence Group is staffed by professionals with extensive hedge fund and operational experience earned from positions in credit analysis, technology, legal and accounting. Rather than provide an analysis of an underlying manager’s investment merits, the group focuses on the manager’s business merits. Since historical evidence suggests that many fund failures have resulted from insufficient infrastructure and administrative systems, the importance of this function cannot be overstated. As a result, the group’s goal is to continue to refine and develop new standards for excellence in this area.

Once Ivy’s Global Manager Research Group is officially interested in a new manager, the operational due diligence team begins its critical analysis. The team conducts onsite visits at the hedge fund manager’s offices to examine the strength of overall operation. This includes an analysis of the manager’s overall support staff, valuation controls and review processes, front-back office systems, service providers, and overall contingency, management, support controls and procedures. In addition, the Operational Due Diligence Group is responsible for reviewing background checks conducted on the manager by a third-party investigator hired by Ivy. Managers are then graded for these non-investment functions on a pass/fail basis.

Failure automatically dismisses a hedge fund manager from investment consideration. For all managers where an investment is made, the Operational Due Diligence Group conducts annual visits on an ongoing basis.