Helping companies do the best possible due diligence

Investment Due Diligence for Corporations

Corporate investment strategy is about making choices, and at the end of the day, dealing with the consequences of those choices. The problems with making decisions about investments is that often corporate investment managers do not understand the impact of the decisions on their enterprise, and even worse, are not aware of every aspect of the decisions being made. The key is to make sure that the process is properly founded, planned, monitored, and assessed. A solid corporate investment due diligence program allows each step within the process to be fully understood and the related risks assessed. 

Investments can be many different types:

• Corporate Internal Finance
• Credit from Customers
• Credit from Equipment Suppliers
• Credit from Suppliers
• Credit Terms from Banks
• Grants from Government Bodies
• Lease Finance
• Loans from Government Bodies
• Loans from other Banks
• Loans from other Stakeholders
• Loans from own Bank
• Loans from Owners
• Preferential/Special Funding
• Private Equity Capital
• Public Equity Capital

Investments can come from different sources:

• Advisors
• Banks
• Board Members
• Existing Investors
• Finance Firms
• Individuals
• Investment Banks
• Government Sources
• Industry Sources
• Intermediaries
• Merchant Banks
• Principals
• Team Members

Corporate Investment Due Diligence

A strong corporate investment due diligence process should provide corporate investment decision makers with a complete system. That system should include a list of steps to appreciate their investment wishes, to make their investments, and then to make sure that those investments perform to everyone’s satisfaction. Here is a series of recommended steps to understand and refine corporate investment programs, guiding those investments to perform at their best.

1. Set up Your Investment Fundamentals, including:

• Build solid strategic and tactical plans for corporate investing
• Determine if there any overly concentrated or restricted investments
• Determine if there are any unrealized gains
• Determine the existing portfolio investments, liquid & illiquid
• Determine the liabilities of the existing portfolio investments
• Determine the true investment experience of the team

• Approval procedures for all steps in the investment process
• Cash flow needs
• Performance objectives
• Risk tolerances
• Tax planning
• Time horizons

3. Develop the Investment Strategy, including:

• Determine how much of your investment process will be internal or external
• Determine the acceptable risk / reward ratios
• Determine how to maximize the risk / reward ratios
• Determine how to minimize tax costs
• Determine what asset focus is appropriate
• Determine how investment decisions affect corporate benchmarks

4. Implement the Investment Strategy

5. Measure Performance, including:

• Performance Attribution
• Performance Reporting
• Performance Tracking

5. Monitor the Investments, including:

• Review objectives & strategies on an ongoing, periodic basis
• Revise methodologies
• Monitor market conditions
• Assess market conditions changes
• Revise strategic assumptions
• Revise tactical assumptions
• Change asset allocations

The primary points for corporate investment due diligence are:

• Accurately and totally define investment assumptions
• Constantly and completely understand current investment strategies and tactics
• Accurately define investment goals
• Accurately define methodologies to achieve those goals
• Implement carefully but firmly
• Measure everything
• Monitor everything
• Change assumptions, strategies and tactics when necessary

Charles F. Bacon, CEO & Keeper of the Vision
Due Diligence, Inc.
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