Quora Answer: What are Aspects of Due Diligence in Investment Funds?

The following is my answer to a Quora question: “What are the aspects of due diligence in investment funds?” 

There are two main aspects.  The first is the due diligence on the source of funds that come into the fund, and the second is the due diligence conducted on the investment targets.  The due diligence in the source of funds looks at the source of wealth and income of the entity, the capitalisation if applicable, any red flags in terms of legal encumbrances, and beneficial ownership, and suspicious transactions.  All investment committees and their compliance department have a comprehensive checklist.  The due diligence on the companies or projects involve the usual checks in the background of the company and the people involved, the projected revenue and return, any conflicts of interest, and legal encumbrances.  This also involves the analysts.