Identifying Red Flags in Private Market Due Diligence
There is no shortage of information out there about due diligence on private assets and managers of private funds. When I started in the business many years ago, I remember receiving a research paper on the topic from Goldman Sachs, which amounted to a very long checklist of questions to ask to help vet a manager. As someone starting out in the industry, this was a great tool, but as I advanced in my career and met hundreds upon hundreds of managers in thousands of meetings, it became clear that there was much more to the due diligence process than could be captured in a checklist. As one of my mentors liked to say, “…our job is to be like Columbo, always looking behind the obvious facts to uncover the truth.” While we weren’t always prepared with a gotcha question to get to that truth, it was usually the diligence occurring outside the lines that yielded the best insights. With this series of articles, I will aim to add a different perspective to the academic literature on the topic by relating lessons that I have learned in the trenches. I will also provide some observations on interesting insights I have found through the thousands of human interactions I have had interviewing general partners (GPs).
