Family Office Due Diligence

Helping Families Build a Legacy

In the world of family office investments, conducting thorough due diligence on the principals of firms seeking capital is crucial.

This process is about more than just understanding the financial prospects of an investment; it’s about comprehensively evaluating the integrity and track record of the individuals behind the venture.

Family offices, known for their strategic approach to wealth management and preservation, typically seek detailed insights into the professional backgrounds, achievements, and reputations of key personnel. This depth of information ensures that investments are not only financially sound but also managed by individuals who are credible and competent.

Due diligence in this context involves examining various aspects of the firm’s leadership, including their historical financial activities, potential conflicts of interest, and overall business acumen. This rigorous assessment helps in identifying risks and opportunities that may not be immediately apparent, enabling family offices to make more informed decisions.

Furthermore, understanding the character and ethics of the people behind an investment aligns with the values-driven approach often favored by family offices. It ensures that investments contribute to long-term wealth preservation and resonate with the family’s own principles and goals.

While it is common for investors to request such information about key personnel in due diligence questionnaires, the responses should not be taken at face value.
Individuals seeking to raise capital sometimes attempt to “fake it until they make it”—overstating their qualifications and experience—or, worse yet, outright lie about past criminal prosecutions, civil litigation, regulatory sanctions, or other issues in past venues.

Pitch materials sometimes include copies of principals’ background checks. While these documents may suffice for initial review, they should not be relied upon as deals move forward.

Purported investigative reports may be fabricated.

Additionally, the scope and depth of such research varies widely among investigations firms offering due diligence services. Some firms rely almost exclusively on database searches, which miss most, if not all, of the relevant information about individuals.

A few firms, like Imperative, use a variety of sources and methods—including hands-on in-courthouse records research—to develop thorough dossiers specific to investors’ concerns.

Beyond confirmation of claims made during the pitch process, some investors seek to gain deeper insight into the personal affairs of potential investment targets’ principals. These deeper investigations may be useful in better understanding the individual’s personal conduct, judgment, and ethics.

Imperative assists investors by conducting bespoke investigations unique to their circumstances. Following are many of the options available for risk-averse investors.

Background Investigations on Owners, Directors, and Key Employees

• Identity research to corroborate the personally-identifiable information of the individual.

• Criminal history research to ensure that past alleged criminal acts are understood in the proper context.

• Civil litigation research to understand past instances where the individual has been sued or has brought suit against others.

• Bankruptcy research to determine if the individual has filed bankruptcy in the past and, if so, the nature of their debt and the outcome of the filing.

• Searches for lien and judgment filings resulting from civil litigation matters, government actions, or unpaid debts.

• Secretary of State research to identify corporate entities for which the individual has been listed as an officer or director. The circumstances surrounding those entities may identify possible conflicts of interest or involuntarily dissolved entities.

• Searches for fictitious business names, assumed names, or “doing business as” sole proprietorships.

• Determinations as to whether an individual has been subject to professional sanction by government or self-regulatory agencies.

• Verification of licenses or certifications necessary to conduct certain types of business.

• Verification of education claims made by the individual.

• Verification or employment and previous-venture claims made by the individual.

• In-depth searches of public-facing social media and other internet sources for indications of red-flag behavior, professional recognition, and community involvement.

• In-depth searches of news media archives for references to the individual.

• Retrieval of prior years’ tax returns for the individual or related-entities to corroborate claims of past business involvement and income.

• Confirmation that the individual is not debarred or suspended from participating in state or federally-financed programs.

• Verification that the individual is not listed as a specially-designated national by the Office of Foreign Asset Control nor is listed in a variety of other national and international watchlists.

• Confirmation that the individual is not prohibited from engaging in certain financial transactions by the Office of the Comptroller or other government agencies.

In higher-risk investments, further inquiries can be made into the nature of an individual’s personal behavior and interactions, including:

• Identification and research into significant relationships and cohabitants.

• Searches for interactions with law enforcement that might not have resulted in prosecution.

• Review of state and federal political contributions.

Background Investigations on Corporate Entities

• Verification of the entity’s standing with the state and identification of its officers, directors, partners, or related entities.

• Civil litigation research to understand past instances where the entity has been sued or has brought suit against others.

• Bankruptcy research to determine if the entity has filed bankruptcy in the past and, if so, the nature of its debt and the outcome of the filing.

• Searches for lien and judgment filings resulting from civil litigation matters, government actions, or unpaid debts.

• Verification of licenses or certifications necessary to conduct certain types of business.

• Confirmation that the entity is not debarred or suspended from participating in state or federally-financed programs.

• Verification that the entity is not listed as a specially-designated national by the Office of Foreign Asset Control.

• Confirmation that the entity is not prohibited from engaging in certain financial transactions by the Office of the Comptroller or other government agencies.

• In-depth reviews of news archives, social media, and the internet for references to the business.