Risk advisory and due diligence for investors
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 organization. This brings challenges, risks, and opportunities.
We believe having a robust operational due diligence process is essential for putting your organization 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 organization. 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
Understand the operating modelYou 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 organization’s qualities, culture and priorities.
Carry out on-site meetings where feasibleExploring 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, and an onsite meeting can help you verify and validate your initial findings.
Document your findingsAfter 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.
Plan your next stepsOne 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.
Operational risk assessmentWe 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 consultingLeveraging 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 consultingWe 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 lendingWe can help you structure a program to optimize cost benefits from your investments while also helping ensure you have the right lenders for mitigating risks and meeting your performance objectives.
Ongoing monitoringWe can help you establish ongoing monitoring to help ensure continuous management of any operational risks associated with your investments.
Local expertiseWe 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.
- 1 The issue
- 2 The solution
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.
Leverage our breadth and depth
US $16.45 trillion in global assets under advisement1
US $393 billion in global assets under management2
More than 12,400 investment strategies rated3
More than 7,000 asset managers rated4
Introducing some of our team
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