Investment Diligence During a Global Pandemic

October 20, 2020 - Eric W. Bennett, CFA
2 Min read

Like many institutional-quality investment teams, we follow a rigorous process of conducting due diligence on outside asset managers to research new and existing investment options. In addition to traditional investment research processes, like data analytics and interviewing key decision makers, we also employ other techniques to ensure we are making the best decisions possible on behalf of our client families. Onsite visits, behavioral descriptive interviewing, probability-based scenario analyses, background checks, assigning an internal devil’s advocate to challenge assumptions, consulting with industry experts, subscribing to insightful research providers, and maintaining a robust pipeline of asset management firms who are able to provide outside perspectives are examples of how we assess the attractiveness of a particular investment opportunity.

When COVID-19 disrupted our lives (and the markets) in March, our investment team worked diligently to understand client portfolio risk exposures and identify potential areas of opportunity. Given our investment philosophy of maintaining a long-term mindset, we saw the market correction as an opportunity to implement changes to client portfolios we had been researching throughout 2019 and early 2020. For example, our thematic opportunity research led us to divest from a previously successful investment in a manager that invested in large corporate mergers and instead allocate capital into several innovation-focused technology and biotechnology asset managers. Fortunately, this diligence had been ongoing for six to nine months pre-pandemic, so all the requisite onsite visits and face-to-face meetings had taken place.

As we look forward, Chief Investment Officer Eric Bennett is continuously challenging our ten-person team to improve upon our existing decision-making frameworks and processes. We identified several pros and cons to our existing investment diligence process arising from a more work-from-home world. A decreased ability to conduct onsite visits is an obvious con. However, because we typically follow investment managers for years and make it a practice to visit any top prospective managers when any team member is in the area, we have been onsite with hundreds of firms in the past several years. We are also addressing this through an increased emphasis on background checks, reference checks, and of course, video conferencing. A less obvious pro has been our ability to more frequently connect with key decision makers at different investment management firms. The lack of travel across the industry has made connecting with peer asset allocators, money managers, and subject matter experts easier during this time.

Investing during this global pandemic has provided an opportunity to improve our research processes in ways we could not have imagined a year ago. It is energizing to see our investment team’s curiosity, initiative, and hard work each day. If you have any questions regarding your portfolio, please reach out to your advisor.