independent process of operational due diligence · expertise in operational due diligence ......

Independent Process of

Operational Due Diligence

P A G E

Industry case

About Laven Partners

Expertise in Operational Due Diligence

Operational Due Diligence methodology

Laven Partners’ Due Diligence Manager

What our clients say

Management team

Disclaimer

Contents

2www.lavenpartners.com

INDUSTRY CASE

P A G E

10 December 2008: Bernard Madoff confessed to running a large Ponzi scheme. Madoff says the

business had lost about $50 billion

In June 29, 2009: Madoff was sentenced to 150 years in prison

February 15, 2011: In an interview from prison, Madoff told a New York Times reporter that some

banks and hedge funds "had to know“…

This fraud is not unique and soon after, during 2009, the first UK fraud Weavering Capital was

revealed. This was on a smaller scale with losses of $530 million but the repercussions were high

These scandals have caused a paradigm shift for investors and regulators and a search for better due

diligence practices. How can Laven Partners help?

Madoff and other frauds

4www.lavenpartners.com

ABOUT LAVEN PARTNERS

P A G E

Established in 2005 by a forward-thinking finance solicitor and hedge

fund COO – Jerome Lussan – Laven Partners is a global consultancy and

regulatory software publisher, servicing the financial industry with a vision

to empower investors, brokers and managers by offering regulatory

solutions that improve operational processes and structures.

Today, Laven Partners remains committed to those same principles and

continues to assist clients with their business challenges.

Expertise. Vision. Confidence.

Since 2009, Laven Partners has held the ISO 9001:2008 quality standard

designation for the quality and reliability of its independent process of

operational due diligence (IPODD)

In June 2012, Laven Partners published the FT Guide to Investing in

Funds, authored by Jerome Lussan

Introduction

6www.lavenpartners.com 6

Certificate No. FS553272

P A G E

Key facts


Headquartered in London, with subsidiaries in New York, Geneva and

the Caribbean. Laven Advisors LLP is a regulated MiFID firm in the UK

Independent privately held entity for more than 10 years. The board of

directors of Laven Holdings Ltd shares a strong sense of personal

responsibility for the activities of the group

Offering a suite of regulatory software, the Due Diligence Manager, the

Digital Compliance Assistant and the KYC Assistant

20 subject matter experts across the offices around the globe

Over USD300 billion of clients by size, covering 17 regulatory systems

Laven Partners is a member of the Alternative Investment Management

Association (AIMA)

P A G E

Through our vision and Laven Partners’ One Mind concept linking

operational, regulatory and risk expertise, Laven Partners is uniquely

placed to understand the business of our clients.

We are leaders in the financial industry in providing intelligent and

intuitive commercial and practical advice, giving clients the benefit of our

diversified, yet balanced expertise.

Ensuring that knowledge and skills are accessible to everyone

characterizes our culture; it drives confidence and supports the

Company’s vision. We combine the unique One Mind approach with a

strong team ethic, devoted project management and proprietary IT

systems. As a result, the various departments can utilize staff from other

departments thus providing the needed subject matter expertise.

Laven Partners’ One Mind ethos


EXPERTISE IN OPERATIONAL

DUE DILIGENCE

P A G E

Laven Partners’ unique model

1 0www.lavenpartners.com

Laven Partners has pioneered due diligence services for the past decade. We combine strong

expertise and proprietary technology to deliver the industry’s most comprehensive operational due

diligence services in a cost efficient manner:

automated due diligence software - Due Diligence Manager © software (the DDM)

bespoke templates and scope, developed to match client’s specific needs

competences in operational, legal and regulatory matters

time saving methodologies and report duplication functionalities

competitive fees

recognized innovative products

no conflicting investment advisory business

process driven with ISO certification

strategies covered range from classic equity, credit, fixed income, to global macro, CTA, fund of

fund, managed account platforms, private equity, and real estate or other illiquid strategies

extensive on-site visits with managers for outsourced work

P A G E

Due diligence is about understanding a manager’s internal operations to

protect investors from losses which are related to operational failures or

frauds. Minor violations that are overlooked or ignored can feed bigger ones

and can foster a culture where laws are increasingly treated as ‘toothless

guidelines’.

Our due diligence services provide investors with an independent review of

an asset managers’ operations and investments. Each review assesses the

asset manager and the fund’s commitment to regulations and industry best

practice standards. Our outsourced process comprises of reviews of

documentation provided by the fund manager, followed by independent

corroboration of the information with service providers and through an on-

site visit.

Our reviews are based on a comprehensive check of over 520 red flags

and concerns that are derived from regulatory laws from Europe, North

America and Asia and best practice standards.

Meeting best practice standards

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Trade associations used for

best practice standards in

our ODD process:

OPERATIONAL DUE

DILIGENCE METHODOLOGY

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Recommended report topics for

operational due diligence reviews


Risk managementrisk management function, risk

committee, valuation risk,

counterparty risk

Fundstructure, corporate governance, fees & expenses,

offering memorandum

Service providersadministrator, prime broker/custodian,

depositary, auditor, legal counsel

Management entitiesstructure, corporate governance, investment

management agreements

HR, IT & Insurancekey individuals and employees, IT &

business continuity, insurance

Front to back office portfolio manager, investment committee,

order management, back office resources,

reconciliation of orders, shadow accounting

and NAV confirmation

Compliancestatus, officer, procedures and controls, training,

insider trading, AIFMD/UCITS/FINMA/SEC/CFTC

& NFA/MAS/SFC regulations, fund distribution

ESGESG policy, ESG officer, ESG reports

Background checksweb searches, KYC checks, investor references

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Laven Partners’ workflow


Key documentsService providers

questionnairesOnsite visit Debriefs Report delivery

Trust, but Verify

Technology

analysis of the fund’s

key documentation

analysis of completed

independent

questionnaires

received from the

fund’s key service

providers

(Administrator,

Custodian, Prime

Broker, Auditor and

Legal counsel,

where applicable)

onsite due diligence

visits with the

investment manager

or advisor, where

the aim is to

question senior

management as well

as junior staff on

their roles and

responsibilities

pre-onsite and post-

onsite debriefs with

clients and the

relevant investment

manager or advisor

production deadlines

of 4 to 6 weeks

LAVEN PARTNERS’ DUE

DILIGENCE MANAGER

P A G E

Developments of our DDM software


The DDM allows subject matter experts (lawyers, compliance, operation and risk consultants) to focus on

their areas of expertise while ensuring time efficiencies and project management

The DDM is designed to remove errors and inconsistencies in the content and the creation of the report

The DDM includes a customizable compliance module to support AIFMD, UCITS, FINMA, SEC, CFTC &

NFA, MAS and SFC requirements

2006 2009 2014 2016

Laven Partners

originated digital

web-based

questionnaires

Created web-

based ODD

system called the

Red Flag Database

Laven Partners developed the Due Diligence Manager©

(the ‘DDM’) digitalising operational due diligence and

report production

Laven Partners reviews the DDM

quarterly to reflect changing laws

and best practice standards

P A G E

How the DDM is used


DDM

The DDM is used to aggregate information

flow and to match it to content checks. The

content analysis covers operational areas of

interest to the specific client, allowing for the

implementation of their own questionnaires

and templates. Manager information is then

linked to prescribed answers derived from

facts and measured against applicable laws

or best practice standards. The DDM further

publishes a real time review of the information

raising issues automatically for the user. The

user will see red flags (a breach of law or

regulation), or concerns (a breach of best

practice standards) and is able to add further

commentary. Reports are automatically

produced into a PDF format and can include

the results of the DDM’s scoring engine.

The DDM technology is used during Laven

Partners’ outsourced ODD work. It can

also be licensed directly by clients.

P A G E

Bespoke templates and customisation


The format of the DDM can be built using clients’ own templates and methodologies or alternatively can

be based on templates developed by Laven Partners, covering long only funds, hedge funds, private

equity and real estate funds.

Strategy specific templates are further tailored

for each fund by configuring modules within a

template (essentially sections in a report). This

offers further flexibility to capture the desired

content. Users (depending on user level rights)

are given the optionality to edit the scope of

each report by enabling or disabling different

modules.

The option to add additional content outside a

standard template is also included in each

module, and users can choose whether to raise

a red flag or a concern in relation to the

additional content.

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Key benefits of the DDM


Efficiencies time savings and reduced human errors

Bespoke templates development to cover different strategies from long only to long-short, as well

as more illiquid products. Flexible user driven configuration for all templates

Module customisation for specific areas depending on client’s needs and processes and corporate

identity

Legal and regulatory updates with new questions and answers added to reflect changing laws and

best practice standards

Compliance modules covering rules and regulations from different jurisdictions (AIFMD, UCITS,

FINMA, SEC, CFTC & NFA, MAS, SFC) and best practice standards from leading industry

associations (AIMA, MFA, ILPA and Invest Europe)

Systematic scoring of more than 140 review points including a grade broken down by chapter

Workload monitoring and delegation progress monitoring, various user rights, audit trail of changes

made, internal messaging system

Storage and aggregation of all fund documents as well as reports in one place

Diary functions for deadlines and planning for future monitoring

Search by fund name, manager name, score, strategy and other criteria

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The DDM in practice

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Easy to use dashboard with all

funds / funds worked on

Clear interface with

audit trail

WHAT OUR CLIENTS SAY

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Client references

‘Laven Partners’ ODD is extremely reliable and coherent. We successfully outsourced parts of our

risk review to them, which allowed us to focus on our areas of focus and our clients.

Global Head Investment Products & Wealth Solutions, Dutch Bank

‘Laven Partners’ ODD has helped us to do more ODD without increasing resources and this has

enabled us to focus on crucial business tasks including decision making based on Laven Partner’s

reports. The service is useful, efficient and has allowed us to benefit from reliable and prompt

delegation.’

Risk Director, US Bank

‘Laven Partners’ ODD reviews content is excellent and we are really pleased with their deliverables,

which meet the requirements set out at the beginning of any project. We would definitely recommend

their services to the industry.

Product Manager Private Equity, German Bank


MANAGEMENT TEAM

P A G E

Our Management Team


Jérôme de Lavenère Lussan - CEO

Jerome is the founder and CEO of Laven. His background includes acting as a COO of a hedge fund and as a

financial lawyer at Jones Day. Jerome has a broad degree of expertise in the alternative fund and fund

management industry and is an advisor to many international financial services firms specialising in operations

and regulatory matters. He is a member of the Law Society of England and Wales and of the CFA Society of the

UK. Jerome holds an LLB from the University of Edinburgh. In 2010 and 2011, Jerome was named by Financial

News as one of its 100 Rising Stars, and in 2011 and 2012 as one of its 40 under 40 Rising Stars in Hedge Funds.

Jerome Lussan is also the author of the Financial Times Guide to Investing in Funds.

Tanja Ferri - Managing Director

Tanja has been with Laven Partners since 2007 and works with financial institutions and asset managers, co-

heading Laven Partners’ Operational Due Diligence. Tanja is based in Dublin and provides due diligence consulting

to Laven Partners’ clients in North America, Europe and Asia. Tanja also leads a number of Laven Partners’ private

equity focused projects and has a keen interest in private equity and impact investing. She previously led Laven

Partners’ offshore consulting business in the Caribbean. Prior to joining Laven Partners, Tanja was at the

International Chamber of Commerce in Paris, France. She holds a BA in European Studies from Goldsmiths

College, University of London.

Nick Illsley - Director

Nick is part of the European due diligence team of Laven Partners bringing expertise of various aspects of middle

office and operations within the alternatives space. Previously he trained as a Chartered Accountant with Ernst

and Young before moving to Lehman Brothers where he ran the Euro Medium Term note desk. After that, Nick

joined BlueCrest Capital where he managed part of their Product Control group before going on to head up the

Collateral Management team. Later, he joined Systematica as it span out from BlueCrest to lead their Treasury

and Collateral team. Nick is a graduate of Newcastle and Durham universities and is a CFA Charterholder.

P A G E

Our Management Team


Linhao Guo, CFA,ACCA - Director

Linhao is the group’s financial officer and a member of Laven Partners’ compliance and due diligence team with

regards to risk and investment due diligence. Linhao is focusing on the analysis of financial performance, asset

allocations, risk reporting and risk processes. Prior to joining Laven Partners, Linhao was trained and qualified as a

chartered certified accountant in Leapman Weiss (Charted Accountants), gaining experience in accountancy, audit

and tax on a diverse range of clients. Linhao graduated from Wuhan University of Technology, China with a

Bachelor degree in Management. He is a CFA Charterholder.

George Wood - Director

George is part of Laven Partners’ US team for operational due diligence. He joined the group in 2013 as an

operational due diligence consultant. He is a technology professional within the financial services having spent 15

years implementing technology products for investment management and financial services firms such as T. Rowe

Price, LPL Financial, Calvert Investments, EverBank and D&B. George was previously Senior Vice President at

NASDAQ-listed Viewpoint Corporation. There he was responsible for financial reporting and oversaw the

application of Sarbanes-Oxley accounting controls. George is a graduate from Denison University in Ohio with a

BA in History and English.

Pierre-Edouard Coiffard - Senior Consultant

Pierre-Edouard works with the due diligence department and has over 20 years of experience in the fund

industry. He has an extensive background in sourcing, analysing and monitoring managers as well as strategies,

across all styles and asset classes. Pierre-Edouard previously occupied positions as CIO and Head of Research at

Olympia Capital Management, Integrated Asset Management and Altigefi. Prior to moving into alternative funds,

he was a consultant in the Finance department at Deloitte Touche & Tohmatsu. Pierre-Edouard holds an MBA

from ESSEC and is a graduate engineer from Ecole Centrale de Marseille.

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London

+44 (0) 20 7838 0010

New York

+1 212 935 3606

Barbados

+1 246 844 33 80

Geneva

+41 (0) 22 548 3172

[email protected]

www.lavenpartners.com

P A G E

Disclaimer

Laven Partners Limited is registered in England and Wales (registered number 04829021) with its registered office at 11

Old Jewry, London EC2R 8DU.

The material, its content and associated documents are confidential and may not be disclosed, reproduced or otherwise

given to any third party. This information should not be relied upon. The material is intended only to facilitate your

discussions with Laven Partners Limited. The content is subject to change. No representation, warranty or undertaking,

express or implied, is made or given by Laven Partners Limited or any representative of Laven Partners Limited as to

the accuracy, reliability or completeness of the content. In no event will Laven Partners Limited or any of its directors,

officers or employees be liable to any person for any direct, indirect, special or consequential damages arising any use

or misuse of the content. It is the responsibility of any person or persons in possession of this material to inform

themselves of and to observe all applicable laws and regulations of any relevant jurisdiction. Laven Partners Limited

does not provide tax advice. Any information and opinions contained herein are presented on the basis as at the date of

this document only.


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