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Private Equity Operational Due Diligence: Tools to Evaluate Liquidity, Valuation, and Documentation by Jason A. Scharfman

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CHAPTER 3

Beginning the Operational Due Diligence Review: Core Issues

Chapters 1 and 2 provide an introduction to the field of both operational risk in general, as well as positioned operational due diligence considerations in a private equity context. With this background now in place, we can proceed to a discussion of how an investor can actually begin the process of performing an operational due diligence review on a private equity fund.

GOAL SELF-ASSESSMENT

As we discuss in Chapter 2, before diving headfirst into the operational due diligence process, it is often critical for investors to determine what they are looking to get out of the process. There is not always a universal answer in this regard. Some investors may have several goals when approaching the operational due diligence process. Others may be more single-minded and seek to achieve one primary goal. Certain common goals that are often associated with operational due diligence include fraud detection and mitigation, more informed operational decision making, operational process learning, and process documentation. Regardless of the actual goals an investor may have, it is a highly productive exercise for an investor to go through this self-assessment process to determine not only what goals they may have in mind but what outputs, if any, are to result from this process. In this way, investors can be sure that when they design a process there is an alignment of expectations and the procedures that are necessary ...

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