There are some common trends emerging in the investment management sector in 2022, many of which can be supported by a strong due diligence strategy.
Due Diligence: Key Elements of a Robust Strategy
For risk management and prevention, a robust due diligence strategy is essential for success. The key elements of such a strategy are being consistently thorough, trusting but verifying, and avoiding silos.
When it comes to risk management and prevention, a robust due diligence strategy is essential for success. The key elements of such a strategy are being consistently thorough, trusting but verifying, and avoiding silos. In this blog post, we will explore each of these elements in detail and how they contribute to a successful due diligence process.
Being Consistently Thorough
To be consistently thorough in your due diligence process, it is crucial to have a standardized, repeatable approach. This approach should include clear steps and procedures to ensure that all relevant information is collected and analyzed. Additionally, technology can play a critical role in this process. By automating repetitive tasks and providing an easy-to-use platform for collecting and organizing information, technology can help make the due diligence process more efficient and effective.
But the more through you are the more data you will collect, and more time it will take to review and the less your team can do. This is where technology must help you find actionable insight from the information in a faster way. It can be done by structuring how information is collected so it can be pre-scored by a rule set. Doing this allows the team to focus on red flags first, making sure that even through they have a lot more information they are not missing out on key items.
In a recent presentation to AIMA members in the UK, we outlined the results of a major piece of research across our platforms that showed an average 20% increase in DDQ length. We believe this can be accounted for in the "mechanization" of questions to include more yes, no responses. This increase in quantifiable questions allows Dasseti Collect users (typically asset allocators) to flag answers more easily.
Trust but Verify
When conducting due diligence, it is important to verify the information provided by the target or investment you are reviewing. However, it is also important to verify your own team to ensure that the information collected was reviewed with the appropriate rigor. To achieve this, you should have a clear and transparent review process in place that includes checks and balances to ensure that the information is checked by another set of eyes. Technology can help here with set review or scoring categories and a standard rubric for what qualifies a certain rating. A digital tool can allow you see all reviews side by side and find outliers with ease.
Don't Operate in a Silo
Silos can be a major challenge in the due diligence process. When different departments within an organization collect information in isolation, it can lead to a lack of consistency and completeness in the data. To overcome this challenge, it is important to have a centralized platform that allows all relevant departments to access and contribute to the due diligence process. This platform should include a clear and transparent workflow, as well as the ability to benchmark data. Even small teams over time collect proprietary data that they can use a private benchmark of appropriate risk. This centralized approach can help ensure that all relevant information is considered and evaluated, leading to a more accurate and thorough due diligence process.
In conclusion, a robust due diligence strategy is critical for effective risk management and prevention. By being consistently thorough, trusting but verifying, and avoiding silos, organizations can ensure that their due diligence process is thorough, trustworthy, and effective. By implementing a robust due diligence strategy, organizations can minimize their risk and make better investment decisions.
Take a look at our ODD Guide for more tips on creating a robust, digital due diligence process.