Redefining selection in asset management with 'holistic, client-centric' approach

When selecting external funds, we believe the due diligence process must be watertight. In our view a two-fold due diligence model is needed to cover all the bases and should be split between two dedicated teams: Manager Due Diligence (MDD) and Operational Due Diligence (ODD).

The MDD team evaluates asset managers’ strategies, portfolios, performance, and integration of Environmental, Social, and Governance (ESG) factors. Meanwhile, the ODD team assesses the operational setup, including governance, front to back organisation, risk & compliance management, and IT infrastructure, with a focus on ESG commitment.

This approach can provide clients with investments that are both high-performing and operationally sound, while also reducing operational and reputational risks.

Our own approach comprises over 700 questions, and from those answers, analysts identify managers who offer repeatable, transparent success backed by solid operations, ensuring clients’ confidence. To the latter, one key differentiating factor is the on-site visit that allows the analysts to capture the essence of the managers’ culture and perform an in-depth qualitative assessment.

At the core of a robust due diligence framework, technology should be harnessed with an advanced digital platform which can enhance efficiency, objectivity, and collaboration by automating routine tasks. This type of platform provides significant benefits:

•Enhanced Efficiency and Collaboration:  Using technology reduces time spent on repetitive tasks, allowing analysts more focus on in-depth assessments.

•Objective, Accurate Ratings: An auto-rating system which can limit bias, leading to consistent, data-driven evaluations.

•Centralised Data Management: Centralised data storage enables quick processing, appreciated by auditors and regulators.

•Standardised Reporting: Technology can generate high-quality, standardised reports for consistent client interactions.

Above all, technology should be used to provide a flexible model that adapts quickly to market and regulatory changes, enhancing client value.

In our view, ESG cannot be divorced from the due diligence framework. For us, a commitment to ESG is integrated into every layer of the due diligence process and a dual ESG rating system evaluates managers from both MDD and ODD perspectives. This two-part approach safeguards clients from “greenwashing”.  By comparing managers’ operational practices with their advertised ESG values, we can identify managers with genuine “ESG Original” qualities, ensuring clients’ investments align with authentic sustainability.

This approach also enables us to more readily adapt to evolving ESG regulations, offering clients a sense of reassurance and alignment with industry best practices.

A due diligence process should be rigorous in its assessment but should also  add value to managers. After assessments, due diligence teams should be able to provide feedback to those managers to help them align with evolving best practices. This shift from “trust but verify” to “rate, monitor, and engage” reflects the view that due diligence can be a tool for improvement, raising standards across the industry.

By actively engaging with asset managers and providing guidance, due diligence can support and maintains a sustainable ecosystem. This engagement fosters alignment between managers and clients, benefiting the whole asset management industry.

Prioritising client needs through sustainable, risk-managed investments is the core goal of a comprehensive due diligence approach. Analysts should gain a deep understanding of each client’s profile, and then identify the managers which align with specific goals, risk tolerance, and values.

Operational due diligence can add a layer of security by protecting clients from vulnerabilities in managers’ practices. Such evaluations shield clients from avoidable risks, offering essential protection beyond standard investment analysis. This dual focus on investment and operational rigour means solutions should uphold high standards of integrity and security.

Through a holistic approach, due diligence can drive positive changes in asset management. By promoting best practices, due diligence teams can foster a “virtuous circle of excellence,” encouraging managers to refine practices, benefitting all participants in the ecosystem. As managers raise their standards, clients receive more aligned solutions, reinforcing the ultimate goal of a more efficient and sustainable industry.

In an industry often focused on short-term gains, a balanced approach that emphasizes sustainability and long-term value is critical. Through the use of technology, rigorous due diligence, and a client-centred philosophy, the industry can move toward a more responsible future. Our model shows it’s possible—and essential—to balance performance with sustainability, creating value for clients while promoting an industry built on integrity and trust.

By Chloé de Calatchi, head of manager selection & operational due diligence at ABN AMRO Investment Solutions