What is Due Diligence? Why is it Important?

Wallace:
Let’s go back to the basics. You know, we’ve talked about it a little bit, but what is due diligence? Why is it important for clients?

Brandon:
Yeah, so I would define it as a reasonable investigation of an investment program in order to come to a thorough understanding of the risks. Now, its scope should include verifying the types of facts that would be material to somebody who’s deciding whether to invest or not, and I think you know what successful due diligence is by what it produces, which is confidence in making an investment decision. It’s critical because we want to make sure that the investment represents the right opportunity for the client. We want to verify that the risks that they will take on are reasonable and ultimately due diligence is intended to keep everybody out of trouble down the road, to the extent possible.

Wallace:
As a practical matter, does the process … I mean, are you going to source? If they say, “Here’s a document, our financial,” then do you go to the source to verify that, or what are the mechanics of doing due diligence?

Brandon:
Yeah. So we definitely … Anything that’s material, that’s something that we want to verify or corroborate, so to speak. I think that’s a key part of the due diligence, sort of verifying the disclosures that are put in front of investors. We also bring to bear independent research and sort of our own perspective, and we keep a database of DST program so we can kind of compare fee metrics and other things to the program under review. So I would say all of those types of things go into a review.