Due diligence committees play an essential role in investment management. With the goal of helping to protect investors, due diligence teams evaluate and monitor the investment opportunities, strategies, and providers to ensure that potential investments align with the firm's stated objectives and risk tolerance. 

When it comes to due diligence, what you may see is a curated list of strategies that have met the criteria of the committee from which to build client portfolios. What you may not see is everything that goes into the due diligence process.



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A Comprehensive Process

Those responsible for due diligence at asset management firms are first and foremost tasked with evaluating the universe of investment opportunities, including individual securities, funds, asset classes, and strategies. Typically, due diligence teams follow a comprehensive, structured process that includes extensive evaluation and scoring of a number of factors. Those factors include quantifiable investment-related data such as track record, investment process, team expertise, and performance, as well as operational infrastructure, risk management, compliance, and other factors about the investment provider. 

When evaluating an investment provider, due diligence teams consider any risks — from market risk to credit, liquidity, and operational risks, to legal and compliance risks — that might impact the provider or their offerings. Items such as legal documents, contracts, and agreements associated with the investment are evaluated to ensure that the firm is compliant in all of their investment decisions and that they are complying with regulatory requirements and policies. 

Due diligence also includes an assessment of operational capabilities to ensure that the infrastructure and capabilities of investment managers or service providers are sound and do not present any unnecessary risks.
The entire process must be adaptable to changing market conditions, economic factors, evolving investment strategies, and changing regulatory requirements. The information gathered by the due diligence team helps to guide allocation recommendations by understanding how specific investments fit within a broader portfolio and is used to drive other decisions about the firm’s offerings.

In short, the work of the due diligence team is essential to the success of the firm in managing client assets and delivering on its investment objectives. At Orion, our investment due diligence team focuses on a combination of quantitative and qualitative factors and there are two tiers of research for investment products:

  • Available, which includes quantitative due diligence analysis and due diligence questionnaire review
  • Approved, which includes quantitative and qualitative assessment, on-site/virtual meetings, Guiding Star research report, investment due diligence approval, and on-going assessments

Investment products may be placed “on watch” if the due diligence team determines that the strategy has issues that warrant concern.


The Typical Day of a Due Diligence Team

Let’s consider what might transpire over the course of a day for the due diligence team of an investment management provider.

A typical committee is usually comprised of professionals from various departments within an organization, such as portfolio management, risk management, compliance, legal, and research analysts. Their primary objective is to ensure that the organization's investment strategies align with its objectives while minimizing risks.

Morning Briefing: 

The day may start with a morning briefing where committee members review the agenda for the day and any pressing matters that require immediate attention.

Investment Reviews: 

The committee then might delve into in-depth reviews of potential investment opportunities, which could include analyzing various asset classes, investment proposals, prospectuses, and due diligence reports prepared by research analysts. The group then discusses the investment thesis, risks, potential returns, and alignment with the organization's investment policy and guidelines in-depth.

Risk Assessment:

Risk specialists evaluate market risk, credit risk, liquidity risk, and operational risk to determine whether the proposed investment aligns with the organization's risk tolerance and may present their analyses to the group. 

Legal and Compliance Review: 

Legal and compliance professionals provide input on the legal structure of the investment, contractual terms, and any regulatory or compliance issues to help ensure that the investment complies with relevant laws and regulations.

Performance Analysis: 

The committee reviews the historical performance of existing investments to assess whether they are meeting their objectives as well as evaluate return on investment, volatility, and correlation.

Manager Interviews: 

When reviewing a particular investment strategy, due diligence teams interview the strategy manager. These interviews may include a completed questionnaire, a phone or video interview, as well as an in-person site visit by members of the committee.

Asset Allocation: 

Asset allocation decisions are made through careful consideration of the organization's long-term objectives and risk tolerance. The committee may adjust the allocation based on market conditions and economic outlook.

Manager Selection: 

If the organization outsources asset management to external investment managers, the committee evaluates the performance and due diligence reports of these managers and makes decisions regarding whether to retain or replace them.


Comprehensive minutes of the meeting, including key decisions and discussions, are documented for compliance, transparency, and future reference.


The committee identifies any action items or further due diligence needed and assigns responsibilities, timelines, and follow up to ensure tasks are completed in a timely manner.

Ongoing Monitoring:

The committee continuously monitors the performance of investments and the overall portfolio to ensure they remain aligned with the organization's objectives. They also stay updated on market trends, economic developments, and regulatory changes that may impact investment decisions.

Throughout the day, the committee collaborates, drawing on their expertise to make informed investment decisions that align with the organization's financial goals and risk tolerance. This process is iterative and dynamic, adapting to changing market conditions and the organization's evolving investment strategy.


Technology Empowers Due Diligence

Technology is playing more and more of a pivotal role in enabling investment management due diligence teams to improve their efficiency and accuracy in assessing investment opportunities. First and foremost, technology enables due diligence teams to aggregate vast amounts of data from various sources and automate routine tasks like document review, data extraction, and verification. Technology can help synthesize and analyze data to identify trends, anomalies, and potential risks. But technology can play a more important role in enhancing the work of the due diligence committee in a number of other ways.

Risk management and quantitative modeling software allow due diligence teams to assess and quantify various types of risks associated with the investments they are evaluating. The team can simulate different scenarios to stress-test portfolios to understand how potential risks might impact investment performance and assess their resiliency to market conditions. This can be highly valuable in helping the committee to make more informed decisions and adjust investment strategies accordingly.

Due diligence committees can leverage machine learning to assist in summarizing and extracting key information from data sources. Their algorithms can identify patterns and anomalies in investment data, helping the team to make data-driven decisions. Similarly, AI-powered chatbots and virtual assistants can provide instant answers to queries and facilitate communication, while other newer technologies such as blockchain can help to support transparency in transactions and operations. Plus, AI-powered analytics platforms can identify insights based on historical data and current market conditions, which can be factored into decisions.


Keeping Up With Compliance

As the regulatory landscape continues to evolve, due diligence teams face the challenge of staying current and compliant. To do that, many teams have their own legal and compliance experts within the team, as well as a formed regulatory or compliance committee within the organization. In the past decade, a slew of regulatory technology solutions, sometimes referred to as regtech, have become available. These tech solutions can help streamline regulatory processes, automate compliance checks, and help ensure that legal requirements are being adhered to. 

For asset management providers, due diligence committees do the background work that powers the engine of the organization. Without a well-established and comprehensive, quantifiable process in place, firms may be taking on unnecessary risk or failing to optimize their offering. Tech solutions can help reinforce this process through automation, data insights and modeling that can help due diligence teams drive investment decisions.



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¹Source: As the high-net-worth seek out new wealth managers, how do you retain clients and capture money-in-motion?, PWC, 2022.
Orion Portfolio Solutions, LLC d/b/a Brinker Capital Investments a registered investment advisor. 
The views expressed herein are exclusively those of Orion Portfolio Solutions, a registered Investment Advisor, and are not meant as investment advice and are subject to change. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation, and the particular needs of any specific person.