Due Diligence Framework for Direct Investing

Abstract

The capital allocator is in the business of entering into partnerships with fund sponsors1 to potentially generate significant returns, mainly through long-term capital appreciation, by making, holding and disposing of privately negotiated equity and related investments. A methodical approach to selecting sponsors — which combines scientific rigor with seasoned subjective judgment — may contribute to creating strong results in a variety of economic environments. This paper presents a ‘best practices’ framework for selecting financial sponsors.

Keywords: due diligence, capital allocation, alternative investments, private equity

JEL Classification: G24