In the Spotlight: Private Equity On-Site Visits

Laven Partners provides due diligence insights to private equity investors at the ILPA Conference

Each year, the Institutional Limited Partners Association (ILPA) hosts a members’ conference, which brings the membership together for a three-day gathering in an LP-only environment.  With more than 400 member institutions representing over US$1 trillion of private equity assets under management, ILPA is the only global organization dedicated exclusively to advancing the interests of LPs and their beneficiaries through best-in-class education, research, advocacy and networking.

This year’s conference, which took place in Boston from 31 May to 2 June was a great success. Jerome Lussan, CEO of Laven Partners, was invited to give an insightful presentation to the attending LPs on operational due diligence, focusing on the importance of the on-site visit. He discussed how to best prepare for an on-site visit, what questions to ask prior to and during the visit to get the best results and how to assess the general risk and compliance culture of a GP.

During his presentation, Jerome noted that in May 2014, the SEC had warned that more than half of the private equity firms it had examined were engaging in serious compliance violations. Although compliance standards have generally improved over the years, Laven Partners still finds significant differences across the firms it reviews for ODD. In operational due diligence, the “trust but verify” approach, which requires firms to provide evidence of their procedures and compliance with them, enables LPs to achieve confidence in GP’s compliance infrastructures.

During the session, Jerome pointed out that the aim of the on-site visit is to observe first-hand information already learnt and to corroborate it with the most relevant participants, essentially “testing” the GP’s staff on their work and the implementation of procedures. Importantly, the ODD on-site visit should not be a sales meeting, but rather be well-organised with a clear agenda and areas of focus (led by previously identified potential weaknesses). Laven Partners’ ODD procedure was summarised with the below graph:

Jerome also discussed some of the documents that should be asked for prior to the on-site visit, which are listed in the table below.

With regards to the general risk and compliance culture of a firm, Jerome discussed the importance of a clear risk management policy and a compliance program, and the adoption of procedures across the firm. He stated that regular reviews and testing of procedures and infrequent staff training are some of the main areas where many firms fall short when assessed for ODD. Further, he noted that employees within risk and compliance functions should also be sufficiently empowered to carry out their work.

The presentation was highly rated by attendees who found it helpful to hear from an expert practical tips on how to make ODD efficient and effective with limited resources.

We would like to take this opportunity to thank the ILPA for a very successful member’s conference and look forward to what is in store for next year.

Click here should you be interested to discover more insights into private equity ODD practices.

If you are a limited partner who would like to apply for membership in the ILPA, please visit the ILPA website for more information here.

Find out more about Laven Partners’ due diligence services here.

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