As alternative investments continue to gain traction among financial advisers and wealth managers, the need for robust due diligence has never been more important. Alternatives can offer diversification, inflation-hedging potential, and differentiated sources of return — but they also often involve more complex structures, risks, and suitability considerations than traditional asset classes.
Thorough, well-structured due diligence is essential to ensuring that any recommended solution aligns with regulatory expectations, client objectives, and long-term suitability.
Industry bodies, including the CFA Institute, continue to emphasise that due diligence remains a critical foundation of responsible investment selection across both traditional and alternative asset classes. The FCA also places clear expectations on firms under Consumer Duty to evidence robust product understanding, governance, and suitability.
Why Due Diligence is Crucial for Alternatives
Alternative investments can vary significantly in structure, liquidity, risk profile, tax treatment, and transparency. As such, advisers must evaluate them with the same — if not higher — level of scrutiny as traditional investments.
A comprehensive due diligence process helps financial professionals:
- Understand the product structure and underlying asset exposure
- Assess risks, liquidity terms, fees, and downside scenarios
- Evaluate the experience, capability, and governance of the investment manager
- Determine suitability for the target client segment
- Ensure ongoing monitoring and compliance with FCA requirements
Useful reading:
- FCA – Product Governance (PROD): https://www.handbook.fca.org.uk/handbook/PROD/
- FCA – Consumer Duty: https://www.fca.org.uk/firms/consumer-duty
Key Areas to Consider During Due Diligence
When assessing alternative investment solutions, financial professionals may wish to consider several key factors:
1. Investment Manager Track Record & Expertise
Assessing the manager’s experience, previous performance, professional credentials, and sector knowledge is vital. Independent insights from industry groups such as the Association of Investment Companies (AIC) can support background research.
2. Strategy, Structure & Asset Class Understanding
Understanding the asset class, investment strategy, deal sourcing, pipeline, and risk management approach ensures informed decision-making. The CFA Institute offers additional guidance on due diligence research.
3. Fees, Liquidity & Exit Terms
Alternatives can include fee layers, performance fees, and lock-in periods. Full transparency on charges and exit terms supports suitability assessments and client understanding.
4. Risk Management & Downside Scenarios
Assessing how the strategy performs under stress, economic downturns, and market dislocations supports informed recommendations and client outcomes.
5. Regulatory & Tax Considerations
Advisers should ensure alignment with FCA rules, the firm’s internal compliance framework, and — where relevant — seek specialist tax input.
How Specialist Support Can Add Value
The due diligence process can be resource-intensive for intermediaries. Working with a specialist B2B distributor can help streamline access to:
- Institutional-grade due diligence materials
- Independent research and risk analysis
- Investment manager meetings and Q&A sessions
- Professional-only education and insights
New Capital Link Limited focuses exclusively on the B2B distribution of alternative investment solutions. We work with regulated financial advisers and wealth managers to support informed product selection through structured due diligence and educational support.
Professional-Only Access
New Capital Link Limited works strictly with regulated financial advisers, wealth managers, and authorised intermediaries. We do not engage with retail investors.
Our aim is to empower financial professionals with high-quality information, due diligence resources, and access to experienced investment managers — enabling advisers to make informed, suitable decisions on behalf of their clients.
References & Useful Resources
- FCA Consumer Duty: https://www.fca.org.uk/firms/consumer-duty
- FCA Product Governance (PROD): https://www.handbook.fca.org.uk/handbook/PROD/
- CFA Institute – Due Diligence for Alternative Investments: https://www.cfainstitute.org/research/foundation/2015/due-diligence-for-alternative-investments
- Association of Investment Companies (AIC): https://www.theaic.co.uk/
