Post Summary
The fifth and final confirmed installment of Convergence's annual Operational Due Diligence survey series on-site, covering 2020 survey data and released February 10, 2021.
Evans stated, "We are seeing some consistent trends over the last 4 years. CIOs are clearly recognizing the parallel risk in Operating Risk along with Investment Risk. We are helping our clients measure and standardize Advisor Operational, Compliance, Vendor and Regulatory Event Risk. We help them detect and understand the risk in changes in an Advisor's business. Important that ODD teams get beyond the fundamental DDQ and Onsite visits."
Current and new manager allocations remained steady versus 2019, but dedicated resources, people and technology, increased only marginally, which the report states was "likely due to COVID."
Phinney, described as Convergence CEO, stated, "Investors are increasingly using alternative data sources to avoid making investments in Advisers with undesirable and High Risk business conditions."
Yes. The release states 100% of respondents indicate their organization views ODD as a "value adding" activity that can improve returns and manage portfolio risk.
Convergence Inc. has released the annual results of their 2020 survey focused on Operational Due Diligence
CHICAGO (PRWEB) FEBRUARY 10, 2021
Convergence Inc. has released the annual results of their 2020 survey focused on Operational Due Diligence (ODD) practices and processes with respect to investment allocations by institutional investors to alternative assets. Survey participants included a cross section of institutional investors with respect to type of investor (e.g. funds of funds, pensions, endowments, etc.), amount and number of investment allocations to external managers and amount of new annual allocations to external managers.
"We are seeing some consistent trends over the last 4 years," noted Co-President George Evans. "CIOs are clearly recognizing the parallel risk in Operating Risk along with Investment Risk. We are helping our clients measure and standardize Advisor Operational, Compliance, Vendor and Regulatory Event Risk. We help them detect and understand the risk in changes in an Advisor's business. Important that ODD teams get beyond the fundamental DDQ and Onsite visits".
Based on survey respondents' observations, Convergence noted the following:
Given continued regulatory focus and increasing manager operating complexity, investors should refresh their evaluation of the level of resources (staff and/or technology) dedicated to Operational Due Diligence, as well as their own current written policies and documentation requirements from managers. Current manager and new manager allocations remain steady versus 2019, but dedicated resources (people and technology) have increased only marginally - likely due to COVID. Tool sets provided by Convergence lend themselves to small to medium-sized ODD teams challenged by capacity and bandwidth.
Investors are beginning to supplement their current ODD data collection and evaluation efforts with independent and more timely data-driven insights that can pinpoint specific conditions within their Advisers that deserve more scrutiny.
"Investors are increasingly using alternative data sources to avoid making investments in Advisers with undesirable and High Risk business conditions," said John Phinney, Convergence CEO.
With the considerable increase in new products and new avenues for product distribution by managers, investors should reevaluate those data points, metrics and sources of information for assessing manager operational complexity and non-investment risk. Consideration should be given to appropriate weighting of risk areas for scoring purposes, and scoring processes should be considered by those not presently doing so as part of their ODD process. Complexity and Risk profiling is paramount to active management of an Advisor.
Although 100% of respondents indicate their organization views ODD as a "value adding" activity that can improve returns and manage portfolio risk, this area is one in which investors may slowly continue to build resources, processes and technology. Investors should consider a complete review of dedicated resources and tool sets in the marketplace for varied aspects of initial ODD and ODD monitoring and make spending decisions consistent with their assessment of risk across their portfolio, recognizing that manager risk profiles are in constant change.
About Convergence
Convergence has developed a data, analytics and surveillance platform that provides transparency and easily accessible information relating to the business operations and infrastructure of alternative asset managers. Convergence products include technology-based tools used to facilitate manager and industry research, analytics and surveillance across the universe of registered investment advisors, including assessment of their operating and business risk profile, comparisons to peers and competitors, and analyses of their service providers. The company's platform includes dynamic data and analytics on 40,000 advisors and over 350,000 funds. Also included is the industry's ecosystem of 6,000 service providers. The platform includes more than 4,000 data points from regulatory filings, news sources and a significant amount of derived analytics and proprietary original content – most notably advisor operating model risk ratings and complexity.
Institutional investors use the company's products to research advisors and their business models with a focus on operational, compliance, vendor and event risk prior to and throughout investment allocation. Convergence products benefit institutional investors focused on employing a dynamic, data-based on-going process of manager and advisor surveillance. Predictive Analytics enables a forward looking view of the Advisor.
More information can be found at convergenceinc.com or by contacting George Evans for additional inquiries or questions pertaining to Convergence, its products or this ODD survey.
Key Points
What was the scope and timing of the 5th Annual ODD Survey?
- The release was published via PRWeb from Chicago: Dated February 10, 2021, covering 2020 survey data.
- Participants spanned the same institutional investor cross section as prior installments: The release states participants included "a cross section of institutional investors with respect to type of investor (e.g. funds of funds, pensions, endowments, etc.)."
- This was explicitly framed as the fourth consecutive year of consistent trends: George Evans stated, "We are seeing some consistent trends over the last 4 years."
- Evans connected the finding to a specific risk framing: Evans stated, "CIOs are clearly recognizing the parallel risk in Operating Risk along with Investment Risk."
What did Convergence state about the relationship between manager allocations and ODD resources in 2020?
- Manager allocations remained steady versus the prior year: The release states current and new manager allocations "remain steady versus 2019."
- Dedicated resources increased only marginally: The release states dedicated resources, people and technology, "have increased only marginally."
- Convergence attributed the marginal increase to a specific external factor: The release states this was "likely due to COVID."
- Convergence's tool sets are again described as suited to smaller teams: The release states tool sets "lend themselves to small to medium-sized ODD teams challenged by capacity and bandwidth."
What did Evans say about the scope of Convergence's work with clients?
- Evans described Convergence's role across four risk categories: "We are helping our clients measure and standardize Advisor Operational, Compliance, Vendor and Regulatory Event Risk."
- Evans described a detection and understanding function: "We help them detect and understand the risk in changes in an Advisor's business."
- Evans specifically named two traditional ODD practices as insufficient on their own: "Important that ODD teams get beyond the fundamental DDQ and Onsite visits."
What did the release state about investors' use of alternative data sources?
- Investors were reported to be supplementing existing ODD practices: The release states investors "are beginning to supplement their current ODD data collection and evaluation efforts with independent and more timely data-driven insights that can pinpoint specific conditions within their Advisers that deserve more scrutiny."
- John Phinney, identified as Convergence CEO, commented directly on this trend: Phinney stated, "Investors are increasingly using alternative data sources to avoid making investments in Advisers with undesirable and High Risk business conditions."
- The release connects this to product/distribution complexity growth: Investors are advised to reevaluate data points, metrics, and sources of information given "the considerable increase in new products and new avenues for product distribution by managers."
- Formal scoring is again recommended for investors not already using it: The release states scoring processes "should be considered by those not presently doing so as part of their ODD process."
What did the release state about how investors view ODD's value in this installment?
- 100% of respondents called ODD value-adding: The release states "100% of respondents indicate their organization views ODD as a 'value adding' activity that can improve returns and manage portfolio risk."
- The release again notes concern about the pace of resource build-out: The release states "this area is one in which investors may slowly continue to build resources, processes and technology."
- Investors are advised to align spending with portfolio-wide risk assessment: The release recommends "a complete review of dedicated resources and tool sets in the marketplace," with spending decisions "consistent with their assessment of risk across their portfolio."
- Manager risk profiles are described as constantly changing: The release closes this point noting "manager risk profiles are in constant change."
What platform figures did Convergence state in this 2021 release, and how do they compare to the 2019 survey release?
- The platform covered 40,000 advisors: As stated in this release's "About Convergence" section, up from the 35,000+ stated in the 2019 survey release.
- The platform covered over 350,000 funds: As stated in this release, up from the 150,000+ stated in the 2019 survey release.
- The service provider ecosystem figure remained unchanged: 6,000 service providers, matching the figure stated in the 2019 release.
- The data points figure remained unchanged: More than 4,000 data points, matching the figure stated in the 2019 release.