Advancements in Due Diligence: The New Standard
INTRODUCTION
The goal of a consultant’s or investor’s due diligence process is to understand what drove a manager’s past success and assess whether those same factors are in place to support future performance. Given today’s increasingly complex real estate market environment, defined by challenging past performance relative to other asset classes, liquidity issues and macroeconomic headwinds, investors continue to raise the bar with their underwriting standards for selecting a real estate investment manager for a potential commitment. Beyond a strong track record, investors require clear, demonstrable evidence that a manager’s strategy, team, process and operational infrastructure can drive sustained success across market cycles.
Yet, despite these rising expectations, many real estate investment managers continue to underestimate the rigor and breadth of today’s diligence standards. As a result, even experienced managers encounter obstacles that can undermine investor confidence and jeopardize potential commitments. The following sections outline some common areas where managers fall short of investor expectations and offer real-time insight from consultants into where they’re focusing today. We thank Margaret McKnight, Partner & Head of Portfolio Solutions, Real Estate and Elizabeth Ferry, Head of Operational Due Diligence from StepStone Group, and Erik Ctvrtlik from RCLCO Fund Advisors for their contribution to this blog.
At Alliance Global Advisors, we work closely with investment managers as they prepare for institutional scrutiny, often before they ever enter formal capital conversations. Through our mock Investment and Operational Due Diligence engagements, we see firsthand how consultants and investors evaluate platforms, where expectations are rising and where even experienced managers tend to fall short. The insights below reflect both our advisory work and conversations with consultants who are actively underwriting managers today.
Selling Performance Instead of the Process that Drove the Results
A compelling track record can get a manager through the investor’s door. However, a frequent mistake is over-emphasizing the results without having a clear story that explains how those results were achieved. Investors are increasingly focused on separating a manager’s value creation skill (alpha) from market tailwinds (beta). Managers need to be able to articulate what worked and why, including how they adapted their strategy across acquisitions, asset management and dispositions in response to changing market conditions. This transparency helps to build confidence in the manager’s ability to replicate their past success.
Limited Portfolio Management Discipline
Managers in their early stages often begin by making investments on a deal-by-deal basis, which limits the need to think holistically at a portfolio level. Investors expect managers to convey a defined framework for capital allocation, monitoring portfolio exposures and risk management at an aggregate level. Managers should demonstrate a thoughtful process for establishing portfolio strategic and tactical allocation targets, maintaining diversification and adjusting strategy based on market shifts.
Inadequate Operational Policies, Procedures & Controls
Investors expect managers to have standard policies, procedures and controls in place across key functions within the organization that are foundational for consistent operations and business risk management. Managers often fall short by lacking comprehensive, up-to-date policies and procedures across critical functions such as business continuity, cybersecurity and financial controls. Investors want to see that these policies are not only in place, but are actively implemented, tested and reviewed for adherence to industry standards.
Informal or Insufficient Governance Structures
As a firm grows, informal or founder-centric decision-making can become a liability. Investors scrutinize governance structures to ensure there are clear, formalized processes for management and investment decisions. This includes defined roles and responsibilities, independent oversight where appropriate and mechanisms for accountability. Managers should be able to present a governance framework that supports repeatable decision-making and demonstrates commitment to the longevity of the organization and alignment with its investors.
Misaligned Incentives and Economics
Investors are wary of fee structures and incentive arrangements that prioritize AUM growth over performance. Managers often fall short by not properly vetting that their fees and terms are consistent with current market standards, or by failing to ensure key decision makers have meaningful “skin in the game” through co-investment and alignment with performance through carried interest allocation. To address this, managers should benchmark their economics across industry standards and be able to clearly communicate how their compensation structures drive alignment with investor outcomes.
Inefficiencies Meeting an Investor’s Requests During the Process
The diligence process itself is a test of a manager’s readiness. Managers can unintentionally undermine investor confidence through slow or incomplete responses to data requests, inconsistent messaging across team members or not providing access to key decision makers. A seamless diligence experience for an investor begins to build trust and sets positive expectations for the level of client service they can expect to receive.
Q&A with StepStone Group and RCLCO Fund Advisors
Q: What new or emerging areas of focus have you prioritized in your diligence process recently?
Margaret McKnight: We are spending a lot of time evaluating the manager's NAVs and understanding their valuations for the assets. For example, we want to understand whether the cap rates used in the valuations are within the zones of where properties are currently trading. If the valuations are off, then investors are paying too high a price to invest new capital into an open-end fund, and for a closed-end fund the track record will be overstating returns.
Elizabeth Ferry: A few areas have emerged as bigger priorities in our process lately. If a firm is utilizing A.I., we want to see that there’s a clear, enterprise-grade A.I. Policy in place. With more functions being outsourced, we also look closely at vendor management programs. Vendor selection and oversight procedures should include regular reviews of vendor performance, security posture, and business continuity capabilities including obtaining SOC 1 and SOC 2 reports annually. We’re also beginning to see more private markets managers utilizing expert networks, so we want to understand who they’re using, how often, and what policies are in place to mitigate the risk of material non-public information being transferred. Without the right policies and oversight, these are all areas that could be flagged as an operational risk.
Erik Ctvrtlik: We’re paying more attention to whether managers can really add value through smart operations, especially with inflation and rising interest rates making things tougher. It’s not enough to lean on a big name or past market trends anymore. We dig into the details - how they’ve performed at the asset level, how they use technology to stay ahead and whether they have strong leadership plans for the future.
How well managers handle and use information is also a big deal. We want to see that insights from research actually influence day-to-day decisions. Plus, having a clear, data-driven plan for when and how to sell assets is crucial - relying too much on gut feeling can hurt performance and investor alignment.
Q: Which aspects of operational due diligence are receiving heightened scrutiny today?
Elizabeth Ferry: We continue to spend significant time evaluating transparency around fund expense allocations and fees — particularly where conflicts of interest or affiliate arrangements are involved. In those situations, clear disclosure is critical. We expect to see affiliate fees explicitly addressed in the Limited Partnership Agreement (“LPA”), along with meaningful structural safeguards. These may include: LPAC approval for affiliate fee arrangements; clear disclosure of amounts charged to the fund in audited financial statements; independent benchmarking to confirm fees are at or below market rates and detailed timekeeping records to support appropriate allocation of expenses. Transparency alone isn’t enough — governance mechanisms and documentation need to support it. Cyber risk also continues to be a material operational risk and is an area that we consistently review and update as the risk characteristics change. A key part of that review involves evaluating the strength of testing protocols and the quality of employee training programs.
Q: Where do managers tend to overestimate their readiness and how do you see that show up in diligence?
Margaret McKnight: They're not as responsive to requests as their peers during the process. We see this happening with big and small shops. Usually, the issue is that they haven't sufficiently built out the investor relations function.
Erik Ctvrtlik: Many think they can easily find unique deals at great prices, but that’s pretty rare these days, especially at the scale big funds need. Also, managers who focus on just one sector might miss the bigger picture, which can lead to overvaluing their assets.
Q: What advice would you give managers to better prepare for the evolving expectations of consultants?
Margaret McKnight: Understand your valuations and whether they make sense with where the market is trading for those property types. If there is a deviation from the market, be prepared with an explanation that supports why it has been marked differently.
Erik Ctvrtlik: Know your competition and be ready to explain what makes your firm stand out. It’s not just about having good returns; it’s about showing that your success comes from solid, repeatable processes - not just market luck. That’s what really builds trust.
CONCLUSION
In today’s demanding real estate landscape, due diligence standards are higher than ever. Investors are looking well beyond performance - they expect clear, demonstrable evidence that a manager’s strategy, infrastructure and alignment can withstand market cycles. Even seasoned firms risk falling short by underestimating how diligence expectations have evolved.
Alliance Global Advisors helps managers close that gap. Through our Investor and Operational Due Diligence Process, we mirror the rigor of an institutional consultant review, offering strategic and operational insights that strengthen readiness and credibility with investors.
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ABOUT ALLIANCE GLOBAL ADVISORS
Founded in 2020, Alliance Global Advisors is a women-owned consulting firm focused on developing strategic growth solutions for real asset investment managers. Advising clients with over $970 billion in assets under management, Alliance partners with organizations to provide an informed, independent perspective, continued education and innovative guidance on structuring investment products to attract evolving sources of capital in a competitive environment. Through this work, Alliance helps senior management teams strengthen decision-making, enhance institutional readiness and position their platforms for long-term value creation and performance.
Disclaimer
This blog was originally published in February 2026 and will be updated periodically to reflect changes in the industry. The content may contain or cite personal and/or professional opinions that differ from the views of Alliance Global Advisors.