Investment management due diligence association opens for business
Due diligence is one of the fastest growing challenges in investment management. Investors are performing due diligence on fund managers who in turn are performing due diligence on their prime brokers, custodian and distributors. This is creating a problem. The volume of questionnaires, and the multiplicity of ways in which the same question can be asked by different organisations, means that the quantity of due diligence has lost touch with the quality. Standardisation is an urgent necessity, and standardisation requires standards.
It is to draw up standards that a group of industry practitioners in New York have formed a not-for-profit called the Investment Management Due Diligence Association (IMDDA). The idea emerged from encounters between due diligence professionals at the hedge fund operations conferences organised by Dan Strachman of A&C Advisors LLC from HEDGEAnswers, in which IMDDA executive director Andrew Borowiec was involved.
“There was a mutual agreement between investors and fund managers that the industry needed a set of due diligence standards, and nobody seemed to be doing it,” explains Borowiec. “So we said, `Why don’t we do it?’ That is how it started. As we talked to more people, the idea of forming an association came out, to make it easier for due diligence professionals to talk to each other.” IMDDA was launched in January this year under the leadership of Borowiec.
An advisory board was established. Its first decision was to build an online forum, where members can ask each other questions. A repository of research and articles on due diligence issues followed. The first educational classes on due diligence are being organised now, and will take place this summer. The due diligence classes will be taught by a due diligence professional who moonlights as a professor of due diligence at New York University (NYU). After passing a rigorous test, graduates will be certified as possessing the knowledge and skills to conduct due diligence and approve investments.
Work is now beginning on creating the first standards, which will vary by asset class and investment strategy. This will not be the work of the advisory board alone. Members will be surveyed to collect their input. “Funds were fielding different DDQs, and it was obvious that some of the due diligence teams were just pulling them off the web,” says Borowiec. “They would fill out a huge questionnaire and then there would be no follow-up. Obviously, not all investors handle due diligence that way, but there was a lot of frustration on both sides. If fund managers never heard back, investors would get canned answers that did not fit the questions they were asking. The momentum behind IMDDA was initially about efficiency, but it has grown into much more than that.”
Membership is open to anyone who is interested in educating themselves about due diligence but – and this is important – on an individual basis only. This excludes the corporations that provide outsourced due diligence services. “We wanted free rein to go in the directions the membership and advisory board want to go,” says Borowiec. “We did not want any undue influence by large corporate donors.” This has not precluded employees of due diligence firms joining IMDDA.
The association already has several hundred members paying US$295 a year for the privilege, including some based in Europe and a handful in Asia. A marketing drive is under way in Latin America, where IMDDA is working with investment operations event organisers in the region. “The real advantage of joining IMDDA is the community,” says Borowiec. “You can talk to your peers and build your network. But we are also going to run a wide programme of educational events, from webinars to in-house training and at all levels from Due Diligence 101 to Due Diligence Master classes.”
Any members of COO Connect interested in joining IMDDA should contact Andrew Borowiec at firstname.lastname@example.org. COOConnect will be publishing and distributing content created by IMDDA as a service to members working in due diligence.