The Operational Due Diligence Checklist LPs Actually Use

Managers obsess over the investment pitch and underprepare for operational due diligence — the review of whether your firm is a safe, well-run steward of capital. ODD failures kill commitments that the investment thesis had already won. Here's what serious LPs examine.

Governance and structure

• Legal structure of the GP, management company, and fund entities.
• The LPA terms: fees, carry, waterfall, key-person provisions, and clawback.
• Conflicts-of-interest policy and how allocations across vehicles are handled.

Service providers

LPs want independent, reputable third parties in the critical seats:

• Fund administrator — independent NAV and capital-account calculation.
• Auditor — a recognized firm, with audited financials.
• Legal counsel — experienced fund formation counsel.
• Custodian and banking with proper controls.

Using a well-known administrator and auditor is a powerful credibility signal precisely because it removes single points of failure.

Controls and cash movement

This is the heart of ODD. LPs probe:

• Who can move money, and what approvals a wire requires.
• Segregation of duties — the person who initiates a payment shouldn't be the only one who approves it.
• Capital call and distribution mechanics.
• Valuation policy: how illiquid holdings are marked and who signs off.

Cybersecurity and business continuity

• Access controls, MFA, and a password manager rather than shared credentials.
• Data-room and email security.
• A business continuity and disaster-recovery plan.
• Cyber insurance, increasingly expected even at smaller funds.

Compliance

• Registration status and regulatory posture.
• Compliance manual, code of ethics, and personal-trading policy.
• KYC/AML procedures for subscriptions.
• ESG policy, now a standard line item for many institutional LPs.

Team and key-person risk

• Background checks on principals.
• Depth of the team beyond the founder.
• Key-person provisions that protect LPs if a principal departs.

How to prepare

Treat ODD as a product you build before you need it:

1. Stand up reputable service providers early — retrofitting an auditor mid-raise looks disorganized.
2. Write your policies down. "We're careful" is not a controls framework.
3. Assemble a complete, well-organized data room.
4. Run a mock ODD with an advisor or friendly LP and fix the gaps they find.

The managers who sail through ODD aren't necessarily the biggest — they're the ones who treated operational rigor as a first-class priority instead of an afterthought.