<p>Inside some of Australia’s largest investment funds, chief investment officers and portfolio managers are finding it increasingly difficult to implement portfolio decisions without getting a final tick of approval from their back-office colleagues.</p>
<p>The decisive role of operational due diligence in investment manager selection and monitoring is increasing, with leading funds ranking it alongside investment due diligence ­– or even above it in some cases.</p>
<p>Jonathan Green, who is general manager of investment implementation and operations at the $72 billion New South Wales Treasury Corporation (TCorp), says the fund has a board policy that sits operational and investment due diligence alongside each other.</p>
<p>“We have a board policy that underpins our case and that manages service providers through two lenses – investment and operational due diligence. They are equivalent and both have to be satisfied before a manager can be appointed. In the past 12 months, we have had an instance where the investment case has passed but operational due diligence hasn’t,” he told delegates at the 20th annual Conexus Financial Investment Operations Conference in Sydney on Tuesday.</p>
<p>“We have a set of things we look for as base information, such as a separate chief risk officer to the chief investment officer. In this we try to systemise it as much as we can, and get baseline information. We operate a T+1 cycle. If a manager can’t provide us with data in that time frame, then it’s an outlier,” Green continued. “This is not about the one-off looking under the hood, but the ongoing management of it.”</p>
<p>TCorp has explicit and implicit elements to its operational due diligence, with a sound governance framework. It aims to capture data and systematically harness it.</p>