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2022 Q1 AIMA Journal
The due diligence process is an integral part of the investment process and customized DDQs are becoming more commonly requested by investors.
Transforming investor relations from reactive to proactive: With customised due diligence
The cost benefit of a proactive approach for due diligence responses
Risk management is the cornerstone of due diligence. Investors perform due diligence on potential or existing funds and fund managers to minimise the potential financial risk, operational risk, and reputational risk to their business. These risks are becoming increasingly complex and difficult to manage requiring investors to seek more information at an increased rate from their asset managers.
The due diligence process is an integral part of the investment process but not necessarily one that alternative managers relish. Standardised DDQs like those published by AIMA, ILPA and the PRI have been well received and provide useful intelligence into the type of questions that investors across the industry are asking. Managers that use these standardised DDQs as a basis to formulate responses accordingly will find that they are somewhat prepared to respond to a wide variety of investor requests. However, most investors require additional information and files to supplement the standardised answers. These non-standard requests take up a large proportion of the managers’ time allocated for information requests, because they require internal experts to review the questions and provide new data points. These experts are better suited to drive the search for alpha but they are required to provide transparency for the end investor. This is the dilemma; should the managers push back on the investors and risk impacting fundraising potential or should they utilise resources to provide more clarity and transparency.
Read the full article in the AIMA Journal here.