The age of noise: Increasing complexity of due diligence in asset management

Due diligence is essential in asset management, allowing investors to perform a comprehensive analysis of potential investments. This procedure aids in recognizing possible risks and ensuring that the asset aligns with their investment criteria. By making well-informed investment decisions based on thorough insights into the target asset, investors can effectively minimize risk and increase the likelihood of achieving their desired returns.

As we approach the year 2025, operational due diligence (ODD) is experiencing considerable changes to address new challenges. The increasing volume, diversity, and frequency of due diligence activities, propelled by the emergence of innovative AI technologies, growing cybersecurity threats, and evolving ESG expectations, are fundamentally transforming how asset owners assess and manage risks.

The complex web of:

·         Multi-Layer information request: The information requirements have become increasingly complex, evolving from basic investor due diligence requests to encompass comprehensive operational due diligence. This now includes critical areas such as cybersecurity, sustainability—covering environmental, social, and governance aspects—and diversity and equity inclusion.

·         Regulatory compliance: The demand for due diligence has markedly risen due to regulatory compliance, especially with the implementation of more stringent requirements for Enhanced Due Diligence (EDD). This escalation is attributed to the heightened regulatory standards and the increased penalties and fines associated with insufficient information disclosure or inadequate communication of information.

·         Diversity and ESG: Interest in environmental, social, and governance (ESG) matters, as well as diversity issues, has surged over the past ten years, coinciding with substantial regulatory changes based on principles. As a result of these developments, institutional investors universally acknowledge the importance of sustainable and ESG-focused investing. The primary challenges involve the collection, analysis, and presentation of real-time and predictive data in a comprehensible manner.

In the intricate realm of business, addressing Due Diligence Questionnaires (DDQs) is essential for maintaining financial transparency and delivering exceptional client service, which in turn fosters trust and ensures compliance. Effectively managing the intricacies of Due Diligence Questionnaires necessitates not only adherence to regulations but also a strategic, knowledgeable, and cooperative methodology.