The Hidden Second Hurdle: Why Operational Due Diligence Kills More Deals Than Bad Performance

One thing that surprised me when we were raising institutional capital was how often the investment team was not the final decision maker.

Many emerging managers assume fundraising is about convincing the portfolio managers and research team.

In reality, there is often a second hurdle.

Operational Due Diligence.

And the two groups are frequently independent.

Different teams.

Different reporting lines.

Different priorities.

We had situations where the investment team was enthusiastic about the strategy and wanted to move forward.

Then the operational review raised concerns and the allocation never happened.

Not because of performance.

Not because of risk-adjusted returns.

Not because of the investment process.

Because institutional investors are evaluating two completely different things:

1. Should we invest?
2. Can we invest?

Many managers spend years refining their strategy.

Far fewer spend time preparing for the second question.