Monel Amin Founder of DiligenceVault. Former head of liquid investments risk @ Citi, CMU/Tepper and BVM Engineering alumna

The Dating.com of Due Diligence

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Is diligence similar to dating?

Think about it: Two parties meet, exchange information, and make a decision to commit or not. Similarly, a type of diligence occurs when a person is buying a house or a car, or when an investor is evaluating a fund investment. Diligence exists everywhere there is an exchange of information and a decision-making process therein. The key becomes the exchange of information, both at the onset and throughout the relationship. As they say, communication and transparency are key.

Much like dating, this information exchange can take many forms,

  • Investors and allocators have different fiduciary roles, varying risk frameworks, and their diligence process is quite customized to their needs.
  • Some asset managers are client-first, others are product-first, or focus on both. Their strategy dictates their approach on investor relations and diligence.
  • Different functions within the firm get involved in this information exchange – ranging from manager research, operational due diligence, data teams, ESG, compliance and finance teams.

The consequence of this heterogeneity in the industry is that, one party may push information, another party may pull the information, and each party may have additional questions and points of clarification. The central theme which remains common is that data and document exchange is a key tenet in the due diligence processes.

In the initial investment phase, we have observed three forms of diligence processes between the two parties:

Prospective asset manager sends their standard marketing materials and DDQs to investors, and investors then extract relevant information from these documents and input into their internal systems and databases. While asset managers save time, the investors spend time collating the information received from different managers.

DiligenceVault offers a structured note functionality where investors can normalize their data capture. This enables them to benchmark or build time-series of information for their manager universe, giving them critical insights which were not accessible before.

Similarly, asset managers can create standardized materials on DV while taking advantage of the content centralization and easy collaboration.

Investor sends their information request to prospective managers. The investor relations, client service, and RFP teams at the manager take on the manually intensive challenge of responding to each bespoke request. While investors save time, asset managers struggle to keep up with the increasing need for transparency and the institutional memory at the asset management firms is eroded team burnout results in staff turnover.

DV offers a technology for investors to automate the collection workflow and transform Word and Excel requests into digital ones. True to the two-sided vision for the industry, DV also offers a delightful asset manager experience, where they can now re-purpose answers across investors and collaborate as a team to cut down their time spent in responding to investor requests by 60%.

As a starting point, investor collects parts of the information from the manager’s standard materials and compile the information in their own internal records. Then they send customized follow ups to the asset managers to request additional data points that are needed. Although this may appear to be a balanced approach, it still involves significant manual efforts for both parties, and is not scalable without technology.

DV has just released a new functionality where investors and managers can digitally collaborate on a request and share the burden of information exchange. Investor can input available information, and then send the request to managers to fill in the missing data points. Digital Win-Win for all.

...

Regardless of which cohort of industry participants you represent, the challenge of analog diligence is omni-present in the form of manually intensive exchange of information, bilateral processes, copy and paste marathons, and lengthy email chains. A platform that digitizes and centralizes this information exchange, leverages natural language processing algorithm to create a repository which can be re-purposed, and provides process automation that both sides desperately need has become a necessity, and we are excited to be leading the charge here!!

So, going back to the dating analogy, the less friction in the interaction of the data exchange, the more effective the entire experience. Further, imagine the complexities of long-distance dating! The same applies here when there are time zone barriers, travel bans, and shifting markets. Well, dating.com for the investment management industry is here. Technology is the ultimate equalizer enabling smart, real-time communications and updates between investors and managers, as they invest globally for better returns.

Is it time to meet the parents yet?

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