Qualitative Due Diligence: The LP Perspective
October 10th, 2019
by Graeme Faulds, Director of Product – eVestment Private Markets
Our 2019 eVestment Private Markets Due Diligence Survey explored the importance institutional investors and consultants placed on a variety of their qualitative due diligence practices.
The most important aspect of qualitative due diligence to investors was internally conducted reference checks, with 57% of respondents indicating it to be very important (figure 1), 29% also attributed similar levels of importance on the use of third-party reference checking. In addition, over 1/3rd of respondents placed importance on deal team credit checks. According to an SEC study most investment advisers employ third-party firms to conduct background checks on the fund managers and their key staff. They also observed this was to supplement their existing due diligence processes (SEC, 2014).
Interestingly, while a third of investors placed no importance on social media reviews, some do factor this into their due diligence process.
When I recently spoke to a leading private equity fund of funds, they commented that although it’s definitely very interesting, they don’t rely on it. The risk associated with the reliability and relevance of the news sources means they tend to stick to ‘traditional media’.
As firms become more digitally savvy, transparent, and the industry moves through generational shifts, this could well be a factor that increases in importance in the years ahead.
Figure 1: “In your qualitative due diligence, how do you rate the importance of the following?”