Due diligence in asset management is a crucial process that helps investors and intermediaries assess investment management firms. This involves examining a wide range of data, including quantifiable factors such as track record, investment process and team expertise as well as operational infrastructure, risk management and compliance.

In addition, due diligence also considers how a firm integrates environmentally, social, and governance (ESG) factors into its research processes and product offerings. This enables a fund to demonstrate that its investments are aligned with its values and serves as an early warning system for potential risks.

A common obstacle is the investee’s reluctance to disclose certain sensitive information during the due diligence process. This can restrict the scope of an investigation and reduce its depth. Formal confidentiality agreements and carefully planned information-sharing protocols can help manage this challenge.

Due Diligence in Asset Management: A Comprehensive Guide

Another challenge is the sheer quantity of work involved in conducting thorough due diligence. The review of extensive data sets and multiple stakeholders can be a time-consuming task, especially when the due diligence process is conducted in parallel with a deal.

Finally, foundations must adhere to fiduciary obligations to ensure that the Foundation’s assets are invested prudently and within its stated purpose and risk tolerance. This is accomplished through an active oversight and monitoring process, incorporating due diligence into the selection of investment opportunities, strategies, and providers. This is typically managed by a Foundation’s Board, Investment Committee or in-house investment team or via an external Chief Investment Officer.