10.2 Fund Manager Selection: Due Diligence Flashcards
Specifications of Due Diligence Questionnaires in Private Equity
▪ Details on …
▪ … in terms of sector
allocation
▪…
▪ Operative and strategic value drivers
▪ Corporate governance
▪ …
industry and sector
Diversification strategy
Leverage exposure
Financial value drivers
Specifications of Due Diligence Questionnaires in Real Estate
▪ …
▪ Real estate sector exposure
▪ … exposure
▪ Property management operations
▪ Use of … (CCMBS)
▪ …
▪ Rental growth expectations
▪ Income fluctuation risk (vacancy, lease structure, rents)
▪ …
Geographical exposure (country, region)
Tenant covenant
commercial mortgage-backed securities
Void periods for new leases
Market risk of real estate crash
Similarities between DDQs in PE & Real Estate
▪ …
▪ Investment Strategy
▪ …
▪ Team qualifications
▪ Alignment of interests
▪ …
▪ Firm governance, risk and compliance
▪ …
▪ Environmental, social and governance (ESG)
Firm and fund overview
Investment and Asset Management Process
IT, Cyber and physical security
Accounting, valuation and reporting
Structure of Investor Due Diligence on Fund Managers
What do OPDD & IDD share in common?
check slide 20
Asset flows
People
Remuneration
Reporting
Key risk areas of Investment Due Diligence
Investment Strategy: …
Portfolio construction: Correlations of…
Performance: Track records, statistics
Concentration risk: …
People: Human capital, compensation structure
Capacity: Asset growth, fund size
Financial risk: …
Other: Fiscal costs, philosophy, …
Markets traded, geographies, asset classes, securities, capital structure
prospective fund with other funds
Investor types, asset types
Liquidity, leverage, derivatives
reporting framework
Key risk areas of Operational Due Diligence
….
IT: Information technology systems, information security,…
People: Board of directors, human capital, compensation structure
Cash: Cash management
Reporting: …
Service providers: Fund and firm service providers
Risk management: …
Other:…, valuation, insurance, tax practices
Legal & Compliance: Legal function, legal documentation
business continuity and disaster recovery
Financial documentation, fund reporting
Meta risks, counterparty management, collateral and custody management, compliance function
Post-investment operational processes, assets under management and fund flows
Due Diligence: Closing Process
FUND STRUCTURING
Limited Partner Agreement specifying:
▪ … for the fund management
▪ distribution scheme of …, and
▪ covenants relation to:
-overall fund management,
-…
-restrictions of the type of investment.
compensation structure
costs and profits
activities of the GP
Due Diligence: Closing Process
1st Fund Closing
Lower capital size cap:
▪ When Limited Partners committed required …
▪ GP can start to …
2nd Fund Closing:
…: Second/final closing takes
place several months later
minimum capital aggregate for fund establishment
invest in promising portfolio companies
Upper capital size cap
