Risk advisory and due diligence for investors

We can help you conduct due diligence and mitigate operational risks within your portfolios and strategies. We assess asset managers, custodians and other service providers to help guide your decision-making and achieve your governance objectives. We can also review your internal operations to help ensure they are in line with Mercer’s best practices.

Operational due diligence is critical for investments

Building and maintaining an investment portfolio requires significant work across many functions. One of the most important areas is operational due diligence. Trying to gain a detailed understanding of a service provider before engagement is a multi-layered process — and a critical one. When appointing asset managers, your operational due diligence process helps you understand their investment strategies, structure, resources, policies, systems and other essentials.

When conducting due diligence reviews, our primary focus is to help you distinguish well managed asset managers and other service providers such as custodians, from those that potentially expose you to increased and unnecessary risks and costs. We can help you assess these providers and support you with risk mitigation. 

Considerations when assessing service providers

Each time you appoint a new asset manager into your portfolio, you establish a fresh relationship with a new organisation. This brings challenges, risks, and opportunities.

We believe having a robust operational due diligence process is essential for putting your organisation in the best position to achieve your investment goals while managing risks. 

Our extensive assessment can help you to distinguish between the asset managers that are well-managed and have a strong and well controlled operating environment from those that can potentially expose you to unnecessary risks and costs.

Appointing a custodian means entering into one of the most important relationships you will establish. Your custodian is ultimately responsible for the safety of your assets, accurate processing and managing your investment data. This includes all the administrative functions underpinning the day-to-day operations of your investments.

In our experience, having a custodian aligned with your current and future needs is critical to the success of your organisation. Safe and sound investment administration and internal controls are the cornerstones of virtually every aspect of your investment arrangements.

Four stages of a robust operational due diligence process

A robust operational due diligence process can make all the difference when you’re seeking to appoint the providers best placed to support your business objectives. Four key areas of focus could help you uncover the necessary information:
  1. Understand the operating model 
    You will need to form an overall understanding of your asset manager’s (or other provider’s) operating model. At this initial stage, you should obtain a top-level view of the organisation’s qualities, culture and priorities.
  2. Carry out on-site meetings where feasible 
    Exploring a service provider’s working environment firsthand can be useful when assessing its culture and ascertaining whether the business has the right level of resources to support your mandate and wider objectives. If feasible, an onsite meeting can help you verify and validate your initial findings. 
  3. Document your findings 
    After completing your on-site review, it’s critical to document your findings and record any additional information to support your decision making. Accurate records of your operational due diligence outcomes will also help demonstrate the robustness of your processes to regulators and stakeholders.
  4. Plan your next steps 
    Once you have established a thorough and properly documented process, you should be well placed to take any subsequent actions and follow up on any areas of concern. Your operational due diligence outcomes should help you feel confident in making the right decision, in accordance with your specific risk appetite.

How we can support your operational due diligence needs 

Leveraging our extensive experience in the investment industry, we can help you gain a deeper understanding of your requirements. We have access to a deep insights base, including a proprietary database of industry practices as well as analytical tools. Our team of 50 professionals1 are located across the Pacific, North America, Europe, and Asia regions. 
  • Operational risk assessment

    We can help you develop an operational due diligence process that meets your governance requirements and budget. Our assessment process and proprietary benchmarking against Mercer’s best practices can help you select and monitor service providers that meet your needs. 
  • Operational risk consulting

    Leveraging our operational due diligence framework, we can assess and provide recommendations on where operations in your investment process may be improved. We help you understand whether your existing operating model is appropriate and competitive, relative to your peers.
  • Custodian consulting

    We have extensive experience advising on custodian selection. Our evaluation process and proprietary benchmarking against best practices can help you in your mission to select the service providers best suited to your needs.
  • Securities lending

    We can help you structure a programme to optimise cost benefits from your investments while also helping ensure you have the right lenders for mitigating risks and meeting your performance objectives. 
  • Ongoing monitoring

    We can help you establish ongoing monitoring to help ensure continuous management of any operational risks associated with your investments.
  • Local expertise

    We have professionals around the world ready to support you. We can assess the regional nuances you may encounter within the different regulatory jurisdictions in which you and your service providers operate. 

How we helped a global insurer with due diligence

A global insurer and asset manager was looking for operational due diligence support for its portfolio of more than 110 third-party asset managers.

An internal audit uncovered a need for robust operational due diligence and oversight for external asset manager relationships. This included an analysis of governance structures, corporate factors, company reputation, compliance, operations, and environmental, social and governance (ESG) capabilities. The client also wanted a risk scoring system to highlight areas of potential concern.

The operational due diligence provider needed the scale and expertise not only to handle a significant number of asset managers but also to deal with the complex nature of the client itself. 

Working closely with client stakeholders, we were able to demonstrate a high level of professionalism and technical ability.

The combination of various operational due diligence products ensured the client was able to meet its timing and budgetary requirements.

Our existing database of operational due diligence reports was of significant use to the client, informing decision-making on legacy and new external manager appointments.

Our team’s robust approach to operational due diligence for all types of managers globally also set us apart.

It's all here: MercerInsight® Community

Simplify your search. Get strategic research tailored to your interests from thought leaders across the investment industry, including Mercer and hundreds of third‑party publishers. Membership is complimentary, and it takes seconds to sign up.
Join the community

Leverage our breadth and depth


US $16.2 trillion in global assets under advisement1


US $489 billion in global assets under management2


More than 11,900 investment strategies rated3


More than 3,000 asset managers rated4

* 1 June 30, 2023,  2 March 31, 2024,  3 March 31, 2024,  4 March 31, 2024

Related insights

    Contact our due diligence specialists


    Please read the Sentinel terms and conditions