The institutional due diligence process is the cornerstone of investment management, designed to evaluate opportunities rigorously before allocating capital. Different types of institutional investors—including family offices, pension funds, foundations, and non-profits—have unique processes tailored to their objectives, constraints, and organizational structures.
Fund managers must understand these distinctions to navigate the fundraising landscape effectively. Family offices, with their speed and flexibility, are particularly suited for emerging managers seeking smaller check sizes, while pension funds, with their scale, require more prolonged and bureaucratic engagement.
Family Offices: Rigorous Yet Agile Due Diligence
Family offices represent some of the most sophisticated and resourceful investors. Charged with managing multigenerational wealth, they approach due diligence rigorously, often relying on internal expertise to underwrite potential investments before contacting a manager.
The family office process begins long before the first call. Many family offices source detailed information about a manager independently, reviewing track records, strategies, and market positioning. This proactive approach allows them to bypass traditional due diligence requests that other institutional investors may require, such as exhaustive questionnaires or extensive documentation. When a manager is contacted, the family office has completed much of its internal analysis.
Calls with family offices are notably concise, often lasting 15 to 30 minutes. These discussions focus on key strategic points rather than procedural inquiries. Following several months of information sharing via email and up to four brief calls, a family office may extend an offer. Unlike other institutional investors, family offices lack bureaucratic bottlenecks, enabling them to deploy capital quickly once they are confident in a manager.
This streamlined approach makes family offices attractive for emerging managers, especially those seeking smaller commitments. However, the process remains highly selective, as family offices prioritize alignment with their investment philosophy and long-term objectives. Family offices provide a critical source of flexible and fast-moving capital for managers willing to engage with this exacting but efficient process.
Pension Funds: Scale-Driven and Bureaucratic Processes
Pension funds, which manage millions of retirement savings, represent some of the largest and most influential institutional investors. Their due diligence process is driven by scale, with allocations often exceeding $100 million per investment. This sheer magnitude necessitates a methodical and bureaucratic approach to meet fiduciary responsibilities.
The pension fund process begins with an exhaustive screening phase, typically initiated by investment consultants or internal teams. Managers must complete detailed questionnaires and submit extensive documentation, including audited financials, legal agreements, and detailed strategy descriptions. The focus is evaluating the manager's track record, organizational stability, compliance infrastructure, and risk management capabilities.
Once the initial screening is complete, pension funds often conduct in-depth on-site visits and multiple interviews with the manager's team. These interactions are followed by an extensive internal review process involving numerous layers of approval from staff, consultants, and investment committees.
The timeline for securing an allocation from a pension fund can extend to 15 to 18 months. This length reflects the investment's scale and the bureaucratic hurdles in managing public funds. Emerging managers may find it challenging to meet the requirements of pension funds, as these institutions tend to favor established firms with proven scalability. While the potential rewards of engaging with pension funds are significant, the time and resources required make this route more suitable for more extensive, experienced managers.
Foundations: Mission-driven and Methodical
Foundations, particularly those focused on philanthropy or social impact, approach due diligence with financial prudence and mission alignment. While their processes are less bureaucratic than pension funds, they are still methodical, reflecting their dual mandate of achieving financial returns and advancing their charitable goals.
The foundation's due diligence process typically begins with a pre-screening phase to assess whether the manager's strategy aligns with the foundation's mission. Foundations often prioritize investments in impact-driven sectors, such as renewable energy, healthcare, or education, and managers must demonstrate their ability to generate both financial and social returns.
Once the alignment is confirmed, the process moves to more detailed evaluations, including financial performance analysis, governance reviews, and team interviews. Unlike pension funds, foundations may have smaller investment teams, which can extend the timeline for decision-making. Investment committees, often composed of board members and external advisors, meet infrequently—sometimes only quarterly—adding further delays.
On average, the foundation's due diligence process can take up to a year or more, depending on the timing of investment committee meetings. While their requirements are not as exhaustive as pension funds, foundations demand a clear articulation of how a manager's strategy supports their mission. For emerging managers with a strong impact thesis, foundations offer a meaningful opportunity to secure funding, albeit with patience and persistence.
Non-Profits: Flexible but Committee-Driven
Non-profits, which include universities, endowments, and charitable organizations, share similarities with foundations but often exhibit greater flexibility in their investment approaches. While they prioritize long-term returns to support their missions, their due diligence processes are heavily influenced by the structure and timing of their investment committees.
The non-profit process begins with evaluating a manager's alignment with the organization's financial objectives and risk tolerance. Non-profits may request standard due diligence materials, including performance histories and legal documentation, but their requirements are often tailored to the size and scope of the proposed investment.
A defining feature of non-profits is their reliance on investment committees, which typically meet on a set schedule. These committees, composed of board members and financial advisors, are central in approving allocations. As a result, the timeline for securing an allocation can vary widely, often taking a year or more, depending on committee schedules.
Despite these challenges, non-profits are attractive for managers with a compelling value proposition. They seek partnerships with managers who can deliver consistent performance while aligning with their mission. Emerging managers with strong narratives and the ability to navigate committee-driven processes can find meaningful opportunities within this segment.
Tailoring the Approach to Investor Type
Understanding the institutional due diligence process is essential for fund managers navigating the fundraising landscape. With their agile and rigorous approach, family offices offer a streamlined path for smaller managers. Pension funds, driven by scale and bureaucracy, demand extensive resources and time. Foundations and non-profits prioritize alignment with their missions, requiring managers to demonstrate financial acumen and social impact.
Managers can maximize their chances of success by tailoring their approach to each investor type. Whether engaging with family offices for smaller allocations or navigating the lengthy processes of pension funds and foundations, Ashton Global can help you secure seed capital and co-investors for your fund.
