In the current economic environment, filled with uncertainty stemming from the COVID-19 outbreak, LPs are even more focused on thoroughly diligencing new investments to make the most informed decision. Historically, a traditional diligence process relied on in-person meetings to get a better understanding of the company, financial portfolio and track records. As the world shifts to a remote work lifestyle, we thought that it would be interesting to see how this process has changed.
We’ll use Hamilton Lane as an example given that Cobalt LP is owned by Hamilton Lane. Hamilton Lane is one of the largest allocators to the private markets. In fact, rigorous manager diligence is a key function to Hamilton Lane’s investment process. Given this, let’s explore Hamilton Lane’s historic diligence process and how it has changed in the current environment.
Hamilton Lane’s Historical Diligence Process
Hamilton Lane’s Fund Investment Team is responsible for diligencing funds coming to market. In other words, the team conducts an in-depth review over a three month period (on average from the beginning screening to a final report) on new investment opportunities in the private markets. This rigorous process begins with an initial screening memo. The screening memo contains a high-level overview of the organization and an internal rating to quickly evaluate the manager.
The next step is to bring the manager to the office for an in-person meeting. During this meeting, the Hamilton Lane investment team looks to understand the manager, company culture and fund strategy. After the meeting, the investment team makes a final recommendation to either move forward or decline the fund opportunity.
The investment team then conducts a site visit, usually three to four hours in length, at the GP’s office. During this visit, the team does a deep dive into the investment strategy, team and track record. After the site visit, the investment team creates a final report summarizing all findings on the GP.
Diligence in a Digital World
As the world continues working in a remote environment, efforts toward maintaining comprehensive diligence remain important. At the core of Hamilton Lane’s diligence process is a team-focused approach. By utilizing video conferencing, instant messaging and file sharing, the team is able to continue maintaining synergy and idea sharing.
Furthermore, this same functionality is applied to site visits and interactions with managers. Through virtual diligence, the team can still evaluate the manager, understand historical investments and meet the team. While it was not unusual to have some video conferencing equipment in use for some of the team either during or after the site visit, the transition to a remote environment means everyone at Hamilton Lane is using video technology to complete diligence work. In fact, having video conferencing in a remote environment allows for more frequent connectivity and flexibility around scheduling multiple due diligence sessions and follow-ups. Hamilton Lane has seen it become a very efficient approach to connecting with a broader number of team members across firms.
Similar to video technologies, our analytics and diligence platform, Cobalt LP, remains easily accessible to the diligence teams and further enhances the remote work from home effort. Cobalt LP allows the team to conduct diligence on funds currently in market by leveraging the pre-uploaded Hamilton Lane data. This data encompasses fund-level analytics, granular company-level analytics and diligence memos – all powered by Hamilton Lane’s diligence data. Accessing this data in one centralized analytics platform allows the team to benchmark a manager, understand how the GP has historically generated value and dive into which deals have historically generated the most alpha. With the dynamic charting capabilities, the team is able to quickly visualize and report findings as seen in Chart 1 and Chart 2.