In-house investigative diligence / intelligence roles at funds?

Based on the most helpful WSO content, here’s what you need to know about in-house investigative diligence or intelligence roles at funds:

1. Funds with Dedicated Investigative/Intelligence Functions:

   • While most funds rely on external third-party vendors for due diligence, some larger funds or those with a strong focus on operational and reputational risk may have in-house teams. These teams often focus on validating investment theses, conducting primary research, and identifying risks that traditional diligence might miss.
   • Examples of funds that might have such capabilities include large private equity firms, sovereign wealth funds, and endowments with significant resources. These organizations often have the scale and complexity to justify internalizing such functions.

2. Where This Function Typically Sits:

   • In-house investigative diligence functions can sit within various parts of the organization:
     • Investment Team: When the focus is on validating investment theses and conducting market or management due diligence.
     • Risk or Compliance: If the emphasis is on reputational or regulatory risks.
     • Operations: For funds that integrate diligence into broader operational assessments.
   • The placement often depends on the fund’s priorities and the nature of the risks they aim to mitigate.

3. Scale for Internalization vs. Outsourcing:

   • Internalizing this function typically makes sense for funds with significant deal flow, complex transactions, or a high need for bespoke diligence. Smaller funds or those with less frequent transactions often find it more cost-effective to outsource to specialized firms like yours.
   • For example, endowments and foundations often conduct their own research and thesis validation in-house, as highlighted in WSO discussions, but still rely on external expertise for niche areas.

4. Examples of Funds Doing This Well:

   • Funds that excel in this area often combine internal capabilities with external expertise. For instance:
     • Private Equity Firms: Some PE firms adopt a "private equity light" diligence approach, conducting their own analysis while leveraging third-party reports for additional insights.
     • Endowments: As noted in WSO threads, endowments often aggregate information in-house to generate their own research and investment theses, focusing on trends and sound reasoning rather than solely relying on past performance.

If you’re considering transitioning into an in-house role, targeting larger funds with a strong emphasis on operational and reputational diligence might be a good starting point.

Sources: Q&A: Venture Capital Co-Founding Partner, Endowments & Foundations Part 1: A Basic Overview, https://www.wallstreetoasis.com/forum/investment-banking/breaking-into-private-equity-from-banking?customgpt=1, Advice for New Analysts Seeking PE Exits, Interviewing For Infrastructure Investment Roles