The skills and knowledge needed for effective due diligence checking

Posted by Andrew Borowiec on Nov 20, 2017 9:17:00 AM

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Want to know what it takes to be a successful due diligence analyst? Look no further. IMDDA has the ultimate list of what skills and knowledge you need for effective due diligence checking, plus a practitioner survey to help you understand their perceived importance and how frequently they are done in practice.

 

Where our due diligence checking knowledge comes from

When we were compiling the content for our definitive CDDA qualification, we undertook a rigorous content verification process that included a practice analysis survey.

The survey was completed in full by over 200 practitioners and consulted them on the relative importance of a whole host of potential course topics. These were grouped into general knowledge (investment structures), general skills, investment due diligence and operational due diligence.

Below we’ll reveal some of the key findings from each survey area and we also invite you to explore the survey results in more detail by downloading your own full copy.

 

General Knowledge

In this section of the survey, practitioners were asked to indicate the degree of importance they attribute to a basic understanding of a range of investment structures for the purposes of due diligence checking. A basic understanding would include knowing what each of the investment structures are, how they are differentiated, and the styles and strategies of each. Here are a few highlight stats:

  • More than half of surveyed due diligence analysts believe that it is extremely important to have an understanding of private equity (55%) and hedge funds (52%).
  • It is worth noting that these are also the two most common financial investment types managed by survey participants. You might further conclude that a knowledge of the investments structure you manage is the most important thing.
  • Nevertheless, over 80% of all survey respondents indicated that knowledge of private equity and hedge funds is either extremely important or important.

 

General Skills

Due diligence analysts were asked to indicate the level of importance that various generalized skills play in overall proficiency in due diligence checking. The majority indicated that it is extremely important:

  • That due diligence analysts are able to analyze and make sense of data (78%).
  • That due diligence analysts are able to maintain independence (67%).
  • That due diligence analysts are able to conduct research (58%) and effectively communicate in writing (58%).
  • More than 80% believe that it is important or extremely important for due diligence analysts to possess each of these skills.

 

Investment Due Diligence (Initial and Ongoing)

For the purposes of the survey, investment due diligence investigates, researches, and evaluates the functions of the manager and includes the gathering, analysis and verification of information relating to the historic actual or future expected investment performance and the appropriateness of the stated strategy of the investment as a potential and ongoing part of the investor’s wider portfolio.

This part of the survey asked respondents for feedback on the frequency with which they did each investment due diligence checking task as well as the perceived importance of those tasks:

  • The majority indicated that they identify and review relevant materials (74%) and evaluate and monitor investment performance (72%), portfolio (65%) and market opportunity (56%) at least monthly.
  • 90% or more indicated that evaluating and monitoring investment performance (91%) and portfolio (90%) is either extremely important or important.
  • Each of these responsibilities was rated as important or extremely important by more than three quarters of due diligence analysts who perform them. Find out what they were in the full report.

 

Operational Due Diligence (Initial and Ongoing)

For the purpose of this practice analysis survey, operational due diligence is defined as an investigation, research and evaluation into operational factors of potential and current investment entities and opportunities. Operations refer to the execution of the business functions of any investment management firm day to day running of the organization and does not include the evaluation of the firm’s investment functions.

This part of the survey asked respondents for feedback on the frequency with which they did each operational due diligence checking task as well as the perceived importance of those tasks:

  • 90% or more indicated that observing or evaluating key operational processes (91%) and evaluating and monitoring investment management firms (90%) is either extremely important or important.
  • Just over half indicated that they collect, review and verify relevant materials at least monthly (55%).

Find out more about what your peers actually do and how often, compared with how important they perceive those tasks to be. Download the full survey report here and compare your due diligence checking habits with other practitioners.

Download the Due Diligence Survey Report

Image credit: Freepik 

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