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Client intake, Private equity:

Why your due diligence reports are falling short

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Due diligence should be done before entering any business relationship. Whether it’s a potential investment, client, donor, or partner. However, many organisations leave it until last with a basic database check and a quick online search. This results in a surface-level due diligence report that misses out on all the publicly available information.

Upfront due diligence helps to identify any red flags before progressing that relationship. We call this Initial Due Diligence (IDD). It helps organisations detect risks early and stop teams from investing in something that wouldn’t proceed.

In this blog, we’ll explain what makes a good due diligence report and why it’s a challenge to create. We’ll also explore how AI can automate the due diligence process, so research teams can spend more time on valuable strategic work. 

What is a due diligence report?

A due diligence report is a detailed document prepared by a research analyst summarising their findings from the conducted due diligence work.

Written for clarity and simplicity, these reports highlight important information and provide recommendations on whether to pursue or reconsider a business relationship. Shared among stakeholders and directors, they’re the basis for making better-informed decisions. 

Why are due diligence reports important? 

Due diligence reports are crucial for organisations making decisions about donations, clients, partnerships, investments, or mergers and acquisitions. They guide effective risk management, strategic planning, and uphold the organisation’s integrity and trust.

Communicates findings 

Conducting thorough research is the first step. Ensuring that the time invested in gathering this information isn’t diminished by a poorly structured report is equally important. A well-organised and clearly articulated report should communicate the findings, so the insights gained are fully used and understood by decision-makers within the organisation. 

Summarises risks 

Due diligence reports offer a detailed analysis and summarisation of the reputational, regulatory, and financial risks associated with a subject. This might include their connections such as friends, family, and associates, or it might involve sanctions, political exposure, or links to financial crime found in a news article. When looking at companies, the report may cover its compliance with regulations, the integrity of its supply chain, and any ESG risks. This allows organisations to identify areas of concern that may pose direct risks to them. 

Informs important decisions

Due diligence reports are the basis for strategic decision-making. It guides compliance and research teams towards secure business relationships. In highly regulated industries such as legal services, this in-depth analysis is indispensable for maintaining operational integrity, building trust with stakeholders, and demonstrating compliance to the regulator.

What makes writing due diligence reports difficult?

Creating due diligence reports involves extracting, analysing, and summarising risks from a large amount of gathered information. The goal is to distil this information, highlighting key risks and their impact on the organisation. However, the need for speed and the complexity of risk factors add to the challenge of crafting a report that supports organisations in deciding whether to terminate or continue the relationship.

Data volumes

A challenging part of due diligence is sorting through lots of data sources. Analysts need to extract insights from both structured and unstructured information. Structured sources are neatly stored in a predefined format, like financial records, making them easy to search. In contrast, unstructured data, found in text-heavy formats such as news articles, press releases, and grey literature, lacks a fixed structure. Researchers need to read each piece of content to determine its relevance to their subject and its significance to the report. 

Complex information

Researchers often have to look at data scattered across different sources and buried in online media. Finding these insights require an eye for detail and the ability to draw connections between different information. Content in different languages adds another layer of complexity, demanding not just linguistic skills but also cultural and legal understanding to accurately understand the information. Analysts need to synthesise this information and draw final conclusions that can be easily understood by everyone in the organisation.  

Time constraints

Time is another challenge. Due diligence reports are often needed quickly by other teams in the organisation to make decisions and either progress an opportunity or decline it. This time pressure makes it harder for researchers to thoroughly analyse information and create a report that is both detailed and concise.

Evolving regulations

The evolving nature of international regulations and technological advancements requires analysts to continuously update their knowledge. Staying abreast of global compliance standards, which vary across jurisdictions and sectors, can be a whole job in itself.

The importance of nuance 

Finally, the report must balance the identification of potential risks with the assessment of opportunities. This requires a nuanced perspective, combining judgment with a synthesis of current data to predict potential future scenarios. The analyst must weigh these factors, offering a balanced view that facilitates informed decision-making.

What if AI could write due diligence reports for you?

At Xapien, we’re using generative AI to produce due diligence reports that are as comprehensive and relevant as those written by human researchers, but ready in minutes.

Using AI for the foundational aspects of due diligence enables analysts to apply their expertise where it counts most, enhancing the quality and reliability of the final reports.

Here’s how Xapien’s AI transforms the due diligence process:

Speed

AI drastically cuts down the time needed to compile and analyse data, delivering reports in minutes. Xapien sifts through millions of data sources in seconds, using algorithms that emulate human thought processes. Every relevant piece of information is disambiguated, analysed, and summarised into clear and concise sections. 

Accuracy

It processes extensive datasets with minimal false positives to ensure a more precise risk assessment and compliance check. Since Xapien searches the entire indexed internet in real time, it’ll find information before it appears on databases or the first page of Google.

Comprehensive 

By analysing various data sources and revealing insights that might have been buried on page 100, AI provides a more intelligent and comprehensive search. As our AI models are built for research and due diligence, Xapien can scour the entire web, read all content, translate when necessary, and disambiguate using our proprietary disambiguation engine to only gather information about the correct subject. Then, using the mentioned generative layer, it summarises the information into a uniform and consistent report. 

Intelligent due diligence reports 

By automating the entire process, you ensure a comprehensive due diligence report that addresses all crucial questions about a subject. This eliminates the risk of overlooking any important details, allowing decisions to be based on complete and factual information. Moreover, it takes only minutes, freeing up researchers to focus on more strategic tasks and efficiently get through more reports. This results in the wider organisation developing business relationships faster and positively impacting the bottom line.

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